7 Important Tax Changes You Need to Know for 2023

Tax season is just over the horizon, and soon we will crunch the numbers as we get ready to file returns.

In addition, the IRS has announced major adjustments to dozens of tax rules that will apply in 2023. These are changes that impact your taxes next year and will be reflected in the return you file in 2024.

Inflation has caused Americans more pain at the pump, the supermarket, and elsewhere. But the following IRS changes might allow you to keep more money in your pocket, making for a happier return in 2024.

The amount that employees can contribute to their 401(k) is increasing for 2023. It will be $22,500, a $2,000 boost from the $20,500 limit in 2022.

The “catch-up contribution” limit for workers 50 and older also will increase to $7,500. That means employees in this age bracket can contribute a total of $30,000 to their 401(k) next year.

As with many of the higher limits on this list, the IRS is raising the 401(k) contribution limit in response to the inflation that is surging through the U.S. economy.

The new contribution limit for traditional IRAs and Roth IRAs will be $6,500 next year, a $500 increase from 2022.

The catch-up contribution for those who are 50 or older remains $1,000. That means folks in this age bracket can contribute a total of $7,500 to their IRA in 2023.

Health savings account contribution limits are being increased for 2023 to adjust for inflation.

If your HSA covers only you as an individual, the new contribution limit is $3,850, up $200 from 2022. For HSAs that cover a family, the contribution limit is increasing to $7,750, up $450 from 2022.

To qualify to contribute to an HSA plan in 2023, your deductible must be at least $1,500 for individual coverage, or $3,000 for family coverage. Annual out-of-pocket expense maximums cannot exceed $7,500 for self-only coverage and $15,000 for family coverage.

Pro tip: Contributing to an HSA, IRA, or 401(k) is a great way to shore up your finances. If your salary doesn't allow you to contribute to one of these plans, explore one of the endless ways to make extra cash.

The standard deduction has been raised for 2023. The new deductions are:

• $27,700 for married couples filing jointly (up from $25,900 in 2022)
• $13,850 for single filers and married individuals filing separately (up from $12,950 in 2022)
• $20,800 for heads of households (up from $19,400 in 2022)

Marginal tax rates will look different in 2023 due to inflation. The rates themselves — 10%, 12%, 22%, 24%, 32%, 35%, and 37% — haven’t been adjusted, but the thresholds have.

The new marginal tax rate — the rate you pay on an additional dollar of income — thresholds are as follows:

• 37% for incomes over $578,125 ($693,750 for married couples filing jointly)
• 35% for incomes over $231,250 ($462,500 for married couples filing jointly)
• 32% for incomes over $182,100 ($364,200 for married couples filing jointly)
• 24% for incomes over $95,375 ($190,750 for married couples filing jointly)
• 22% for incomes over $44,725 ($89,450 for married couples filing jointly)
• 12% for incomes over $11,000 ($22,000 for married couples filing jointly)
• 10% for incomes of $11,000 or less ($22,000 for married couples filing jointly)

The earned income tax credit is designed to help low- and moderate-income workers with their taxes by reducing the amount they owe.

For 2023, the amount is $7,430 for taxpayers who have three or more qualifying children. That is up from $6,935 in 2022. The IRS has an online tool that can help you learn if you qualify.

The IRS has increased the threshold for how long-term capital gains are taxed in 2023.

The zero-rate amount applies to gains between:

• $0 and $89,250 for married couples filing jointly
• $0 to $59,750 for heads of households
• $0 to $44,625 for married couples filing separately and single filers

The maximum 15% amount applies to gains between:

• $89,251 to $553,850 for married couples filing jointly
• $59,751 to $523,050 for heads of households
• $44,626 to $276,900 for married couples filing separately
• $44,626 to $492,300 for single filers

Anything above those upper limits is taxed at 20%. Short-term capital gains are still taxed as ordinary income.

Inflation has hit American families hard. The changes the IRS has made to 2023 taxes mean workers can keep more money out of Uncle Sam’s hands starting in January.

During this era of rising prices, that's welcome news for anyone trying to prevent financial stress from making life more difficult.