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As Americans deal with the COVID-19 pandemic, it's not too early to look ahead to the 2020 tax year filing season including the impact of existing and recent legislation on how you will file in 2021.

In addition to several changes brought on by coronavirus-related legislation, other changes for the 2020 tax year were set to happen anyway. These include new standard deduction amounts, income thresholds for tax brackets, certain tax credits, and an increase in retirement savings limits. Others, including deductions for medical and dental expenses, and state and local sales taxes have remained the same.

2023 Tax Brackets and Rates

The income limits for all 2023 tax brackets and all filers will be adjusted for inflation and will be as follows (Table 1). There are seven federal income tax rates in 2023: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. The top marginal income tax rate of 37 percent will hit taxpayers with taxable income above $539,900 for single filers and above $693,750 for married couples filing jointly.

2023 Federal Income Tax Brackets and Rates for Single Filers, Married Couples Filing Jointly, and Heads of Households

 

Tax Rate   For Single Filers          For Married Individuals                        For Heads of Households

10%          $0 to $11,000                  $0 to $22,000                                       $0 to $15,700

12%          $11,000 to $44,725          $22,000 to $89,450                             $15,700 to $59,850

22%         $44,725 to $95,375           $89,450 to $190,750                           $59,850 to $95,350

24%          $95,375 to $182,100       $190,750 to $364,200                          $95,350 to $182,100

32%          $182,100 to $231,250      $364,200 to $462,500                        $182,100 to $231,250

35%          $231,250 to $578,125       $462,500 to $693,750                        $231,250 to $578,100

37%          $578,125 or more             $693,750 or more                             $578,100 or more

KEY TAKEAWAYS

  • Proper tax planning requires an awareness of what's new and changed from last year — and there are lots of tax law changes and updates for 2023 that you need to know.

  • The government’s massive year-end funding legislation, the SECURE 2.0 Act contains a slew of retirement provisions, with some important ones taking effect for 2023. 

  • Green-energy tax breaks for buying electric vehicles and making home improvements were included in last year’s Inflation Reduction Act. 

  • And last year’s high inflation numbers made the income tax brackets and other inflation-adjusted figures soar. 

  • To help you out, we put together a list of the most important tax law changes and adjustments for 2023, with some related items grouped together. Pay attention to these changes because they can hurt or help your bottom line. Use this information now so you can hold on to more of your hard-earned money when it's time to file your 2023 return.

RETIREMENT FUNDS  WITHDRAWALS & LOANS

If you qualify for a coronavirus-related distribution (CRD) from your qualified retirement fund in 2020, it will not be subject to a 10% early-withdrawal penalty. The distribution will be taxable, but taxes can be spread over three years instead of being due the year of the withdrawal. If you pay the funds back to the plan within three years, it will be considered a rollover and non-taxable.

New rules also allow you to take out a loan of up to $100,000 or the amount in your employer-sponsored retirement plan (whichever is smaller) anytime between March 27, 2020, and September 22, 2020, and delay payments on the loan for up to one year. (Interest will accrue.) If you already have an outstanding loan those payments can also be deferred for one year.

REQUIRED MINIMUM  DISTRIBUTIONS (RMDs)

Required minimum distributions (RMDs) for IRAs and defined contribution plans, such as profit sharing and 401(k) plans, are waived for 2020. This includes your first RMD if you reached age 70½ during 2019. You do not have to qualify for a CRD in order to get this exception. If you have already received an RMD in 2020, you can roll it back into the plan within 60 days and defer paying taxes on the amount.

CREDITS

Earned income tax credit 2023 For the 2023 tax year (taxes filed in 2024), the earned income credit ranges from $600 to $7,430, depending on your filing status and how many children you have.

The Child Tax Credit is worth a maximum of $2,000 per qualifying child. Up to $1,500 is refundable. To be eligible for the CTC, you must have earned more than $2,500.

HEALTH  SPENDINGS

ESTATES  & GIFTS

Estates of decedents who die during 2020 have a basic exclusion amount of $11.58 million, up from $11.4 million for estates of decedents who died in 2019. The annual exclusion for gifts is $15,000 for calendar 2020, the same as it was for calendar 2019.

THE BOTTOM LINES

For the taxable years beginning in 2020, the dollar limit for employee salary reductions for contributions to a health flexible spending account (FSA) is $2,750, up $50 from the limit for 2019.

For tax year 2020, participants who have self-only coverage in a medical savings account (MSA), the plan must have an annual deductible that is not less than $2,350 (the same as for tax year 2019) but not more than $3,550, an increase of $50 from 2019. For self-only coverage, the maximum out-of-pocket expense amount is $4,750, up $100 from 2019. For participants with family coverage, the floor for the annual deductible is $4,750, up from $4,650 in 2019. The deductible cannot exceed $7,100, up $100 from the limit for tax year 2019. For family coverage, the out-of-pocket expense limit is $8,650 for tax year 2020, an increase of $100 from 2019.

The inflation adjustments of the IRS are meant to ease federal taxes for taxpayers, so it pays to know the latest figures, which you can use to thoughtfully plan for the 2020 tax year.

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