Authors: Daniel Eger and Cindy Gonzalez

In 2023, several significant adjustments have been made to tax laws that individuals should be aware of. These changes encompass a wide range of topics, from energy credits to retirement contributions, interest rates, and tax brackets. Let's delve into some of the key changes that may impact your financial planning.

Residential Energy Credits

For individuals looking to reduce their environmental footprint and lower their tax liabilities, residential energy credits are worth exploring. These credits aim to incentivize the adoption of clean and energy-efficient technologies in homes. A notable change for 2023 is the Clean Vehicle credits, which are now effective after April 18th. These credits apply to new, used, or commercial vehicles, with qualifying requirements for sellers, dealers, and manufacturers. To learn more about these credits, you can visit the IRS website and review the frequently asked questions provided here.

Interest Rate Changes for 4th Quarter Payments

Starting on October 1st, 2023, significant adjustments will be made to interest rates for tax payments. In cases of overpayments, where individuals have paid more than the amount owed, the interest rate will be set at 8%. In instances of underpayments, where taxes owed have not been fully paid, individuals will be subject to an 8% interest rate. Detailed information can be found on the IRS website.

Retirement Savings Contributions

In an effort to help individuals save for their retirement, the IRS has raised the contribution limits for 401(k) and IRA plans in 2023. If you contribute to a 401(k) or 403(b), you can now put in up to $22,500 a year, an increase from $20,500. Those aged 50 or older can make an additional catch-up contribution of $7,500. Similarly, traditional and Roth IRA contributors can now contribute up to $6,500 (up from $6,000), with an extra $1,000 catch-up contribution available for those aged 50 and older.

Enhanced IRA Contribution Limits

Traditionally, there have always been strict constraints on contributions to both traditional and Roth IRAs. For the majority of individuals, the contribution ceiling stood at $6,000. However, for those aged 50 and above, there was the opportunity to contribute an additional $1,000 as catch-up contributions, bringing the total to $7,000.

The exciting news for 2023 is a boost in these limits by $500, allowing Americans to now contribute up to $6,500 to their IRA. For individuals aged 50 and older, this figure escalates to $7,500.

Increased Contributions to Employer-Sponsored Retirement Plans

Following a similar upward trajectory, the contribution limits for employer-sponsored retirement plans have also experienced a positive adjustment. In 2022, the threshold for employee contributions stood at $20,500. However, in 2023, this limit has risen by $2,000, providing a new maximum of $22,500. For those eligible for catch-up contributions, the prospects for bolstering retirement savings have become even more enticing, with an elevated contribution limit of $30,000.

It's important to note that if you participate in multiple workplace retirement plans, the limitations encompass all salary deferrals and total contributions across these plans. Contributions made to other types of accounts, such as an IRA, remain separate and do not impact these thresholds. These enhanced contribution limits offer individuals and employees greater flexibility and opportunities to secure their financial future.

Health Savings Account (HSA) Contribution Limits

Health Savings Accounts (HSAs) have become increasingly popular for managing medical expenses and as an investment vehicle. In 2023, individuals will be allowed to contribute an additional $200 per year to their HSAs, raising the maximum contribution limit to $3,850. For families, the threshold for coverage will also increase by $450, reaching a maximum of $7,750 for the fiscal year. Keep in mind that you must meet the minimum deductibles to qualify for an HSA plan, which are $1,500 for individuals and $3,000 for families.

Tax Brackets for 2023

Lastly, it's essential to be aware of the changes in tax brackets for 2023. While there are still seven tax rates ranging from 10% to 37%, the income thresholds for these brackets have been adjusted upward by about 7% from 2022. This adjustment reflects the impact of record-high inflation, potentially placing some individuals in a lower tax bracket than in previous years.

These changes underscore the importance of staying informed about tax law updates to make informed financial decisions and optimize your tax planning strategy. Be sure to consult with a tax professional or financial advisor to understand how these changes may affect your unique financial situation.