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2023 Tax Law Updates

Tax Brackets and Threshold increases:

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. 

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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.

 

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

 

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.

 

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. 

  • Adoption Credit

  • 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.

 

Reporting changes:

  • 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.

 

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)

 

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

 

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

 

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.

 

Foreign Earned Income Exclusion:

  • The foreign earned income exclusion increases to $120,000 

  • The foreign housing exclusion is increased to $16,800

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