Now that it's time to start thinking about your 2023 tax return, you need to know what the 2023 tax changes are and how they can impact you. We have compiled a list of these tax law changes and adjustments for you.
Tax Brackets and Threshold increases:
Income Tax Brackets
Income tax brackets change almost every year and this year is no different. While the tax rates did not change, the brackets are wider due to rising inflation in the previous year.
For more information, refer to our tax bracket article.
Long-Term Capital Gains Tax Threshold
Tax rates on Long-term capital gains did not increase. However, the income threshold for the tax rates were adjusted for inflation.
- The 0% rate applies for individual taxpayers with taxable income up to $44,625 on single returns ($41,675 for 2022), $59,750 for head-of-household filers ($55,800 for 2022), and $89,250 for joint returns ($83,350 for 2023).
- The 20% rate for 2023 starts at $492,301 for singles ($459,751 for 2022), $523,051 for heads of household ($488,501 for 2022), and $553,851 for couples filing jointly ($517,201 for 2022).
- The 15% rate is for filers with taxable incomes between the 0% and 20% breakpoints.
Standard deduction amounts were increased for 2023 to account for inflation,
2023 Standard Deduction Amounts:
- Single or Married Filing Separately (MFS) $13,850
- Married Filing Joint (MFJ) or Surviving Spouse $27,700
- Head of Household (HOH) $20,800
2023 Additional age 65 or older or blind
A person is considered to reach age 65 on the day before his or her 65th birthday.
If the taxpayer or spouse is legally blind and/or born before January 2, 1958, the following additions are added to the standard deduction for each occurrence:
- Married Filing Joint, Surviving Spouse, or Married Filing Separate $1,500 (per qualifying individual
- Single or Head of Household $1,850
Social Security Annual Wage Base Increases
The Social Security annual wage base increases to $160,200 for 2023. After an employee earns over this amount, no further Social Security taxes shoudl be withheld.
Residential Clean Energy Credit
You may be able to take a credit of 30% of your costs of qualified solar electric property, solar water heating property, small wind energy property, geothermal heat pump property, and biomass fuel property.
- Include labor costs allocable to the onsite preparation, assembly, or original installation of the residential energy efficient property and for piping or wiring to connect such property to the home.
Energy Efficient Home Improvement Credit
You may be able to take a credit equal to the sum of:
- 10% of the amount paid or incurred for qualified energy efficiency improvements installed during 2022, and
- Any residential energy property costs paid or incurred in 2022.
Refer to this article for more information about the Clean Energy credits.
Clean Vehicle Credit
Individuals can qualify for a credit up to $7,500 if you buy a new, qualified plug-in EV or fuel cell electric vehicle (FCV). To qualify, you must buy the vehicle for your own use, and operate the vehicle primarily in the United States. In addition, your modified adjusted gross income cannot exceed the following amounts:
- $300,000 for married couples filing jointly
- $225,000 for heads of households
- $150,000 for all other filers
For complete qualifications, click here.
For 2023, the adoption credit increases to $15,950 of qualified expenses. The full credit is available for a special-needs adoption, even if it costs less.
The credit phase out range for filers with modified AGIs over $239,230 - $279,230.
Starting in 2023, the reporting thresholds for Form 1099-K have changed in that if you receive $600 or more in gross payment transactions through a payment app such as Venmo, you will be issued a 1099-K.
If you receive a 1099-K for the 2023 tax year, you are required to report the income on your tax return. For complete reporting instructions, click here.
Required Minimum Distributions
Beginning in 2023, the SECURE 2.0 Act raised the age that you must begin taking RMDs to age 73. Click here for more information.
The Kiddie tax increases by $100. For 2023, the first $1,250 of a child's unearned income is untaxed if the child is 18 years old or younger, or a full-time student under 24. The next $1,250 is taxed at the child's rate. Any excess over $2,500 is taxed at the parent's rate.
Alternative Minimum Tax (AMT)
AMT exemption and phaseout increased for 2023
- Married Filing joint - $126,500 (phaseout $1,156,300)
- Single/Head of Household - $$81,300 (phaseout $578,150)
Parking and Transportation Benefits
The 2023 cap on employer-provided tax-free parking is increased from $280 to $300 per month.
Student Loan Interest Deduction
The student loan interest deduction remains at $2,500. However, the income limits have increased. For 2023, the limits are:
- Joint Filers - the phaseout begins at modified AGIs over $155,000 and ends at modified AGIs that exceed $185,000
- Other filers- the phaseout begins at a modified AGI over $75,000 and ends at a modified AGI over $90,000
Standard Mileage Rates
- Business mileage increases to 65.5 cents per mile
- Medical mileage increases to 22 cents per mile
- Military move mileage increases to 22 cents per mile
Long-term Care Insurance Premiums limits increased
- Taxpayers age 71 to 80 can deduct up to $5,960
- Taxpayers age 61 to 70 can deduct up to $4,770
- Taxpayers age 51 to 60 can take up to $1,790
- Taxpayers age 41 to 50 can deduct up to $890
- Taxpayers age 40 or younger can take up to $480
Health savings Account (HSA)
The 2023 contribution caps have increased
- Self only coverage cap increases to $3,850
- Family coverage cap increases to $7,750
The 2023 out-of-pocket costs increased:
- Self- only increases to $7,500
- Family increases to $15,000
Flexible Spending Accounts (FSAs)
For tax year 2023, the limit on employee contributions to a healthcare flexible spending account (FSA) is increased to $3,050.
Qualified Business Income Deduction
Individuals who qualify to claim QBID (Qualified Business Income Deduction) are able to deduct 20% of their qualified business income.
The maximum income threshold has increased to $364,200 for joint filers and $182,100 for others.
First-year bonus depreciation for qualifying business assets with lives of 20 years or less falls to 80% (previously 100%).
The temporary 100% write-off for business meals has expired.
Bonds Used for Education
You may be able to exclude interest on I bond and Series EE bonds used for education.
- Savings bonds must be redeemed to help pay for tuition and fees for college, graduate school, or vocational school for the taxpayer, spouse, or a dependent.
- The exclusion starts phasing out:
- above $137,800 of modified AGI for joint filers and ends at $167,800
- $91,850 for others and ends at $106,850
Foreign Earned Income Exclusion
- The foreign earned income exclusion increases to $120,000
- The foreign housing exclusion is increased to $16,800