Tax Changes for 2023

By: Tom O’Rourke, Counsel

Published: December 2022

The IRS has announced a number of changes to the tax laws that will take effect as of January 1, 2023. Some of these changes resulted from the passage of the Inflation Reduction Act of 2022 (the Act) and other changes are inflation adjustments that are part of the tax code and occur annually.
The Act included a number of provisions to encourage the use of clean energy and in energy saving devices. The residential energy credit provides credits of up to $5,000 for investment in energy efficient property such a solar electric, solar hot water, fuel cell and wind energy devises installed in a home. The Act also extends and increases certain credits for the purchase of a clean vehicle (primarily electric vehicles). The amount of the credit can be as much as $4,000, but eligibility for the credit is phased out for married couples with adjusted gross income of more than $150,000 and single individuals with adjusted gross income of more than $75,000.

The Tax Code includes provisions that are indexed for inflation annually. Because inflation for 2022 was high, some of the adjustments for 2023 are significant. Significant adjustments affecting individual taxpayers include the following:
  • Rates have been adjusted. This should reduce taxes for many individual taxpayers.
  • The contribution limit for the TSP and 401k plans has been increased to $22,500 per year from $20,500 for taxpayers who are under age 50. The contribution limit for persons age 50 or older is now $30,000 per year.
  • The limit for contributions to an IRA have been increased from $6,000 to $6,500 for taxpayers under age 50. The limit for taxpayers who are 50 or older has been increased from $7,000 to $7,500.
  • The amount that may be contributed to a Flexible Spending Account (FSA) has been increased from $2,850 to $3,050.
  • The maximum contribution limit to a Health Savings Account (HSA) has been increased from $3,650 for a person with self only coverage to $3,850. If the individual has family coverage, the annual contribution limit has been increased from $7,300 to $7,750. Any individual who is age 50 or older may make an additional contribution of $1,000.
  • Payments to Social Security recipients will increase by 8.7% and the amount of earnings that are subject to Social Security tax (FICA) will increase to $160,200 from $147,000.
The combined effect of these changes for individuals who plan wisely can be significant and may result in a significant reduction in tax liability.
Tom O’Rourke is of counsel with the firm of Miles & Stockbridge P.C., a full service law firm with offices throughout Maryland, Washington, D.C., and Tysons Corner, Virginia. He began his legal career with the Internal Revenue Service, where he served in the Office of Chief Counsel for a period of 10 years and has been in private law practice since 1983. Mr. O’Rourke’s practice is limited to tax, estate planning, and pension matters. He regularly represents a variety of clients including individuals, small businesses, and not for profit organizations. Mr. O’Rourke is a presenter for NITP.
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