It is a safe bet that tax legislation will be updated this year, as it is every year. Here is a rundown of the various tax-related changes that have occurred over the past year, from the standard deduction to health savings accounts and the tax rate schedules.
You should speak with a professional accounting firm Naperville, IL, if you have any questions.
Individuals
Inflation adjustments are made to several tax rules in 2023, including Health Savings Accounts, retirement contribution restrictions, and the foreign earned income exclusion. The tax brackets for each filing status are raised, but the tax rates themselves—which range from 10% to 37%)—remain the same as in 2022. Up until 2025, the standard deduction will increase, and the personal exemption will be withdrawn.
Tax Rate Alternative Minimum Tax (AMT)
The AMT exemption amounts for individuals will increase to $81,300 in 2023 (from $75,900 in 2022), and for married couples filing jointly, the amount would increase to $126,500 (from $118,100 in 2022). As a result, the new phaseout level is $578,150 ($1,156,300 for a married couple filing jointly). Each year, the government updates the exemption and threshold amounts to account for inflation.
Tax on children
The “kiddie tax,” which is levied on a child’s net unearned income, will be reduced by $1,250 for tax years beginning in 2023. The “kiddie tax” and the threshold at which parents can choose to include their children’s income in their own are both set at $1,250. The gross income of a child in 2023 must be over $1,250 but under $12,500 in order for the parents to make the parental election.
Accounts for Preventative Care (HSAs)
Health savings accounts (HSAs) allow account holders to save money tax-free for their own medical care, as well as that of their spouse and certain dependents.
An individual who meets the requirements must have coverage through a High Deductible Health Plan (HDHP) and no additional health insurance, with the exception of accidental, disability, dental, vision, or long-term care insurance.
A qualifying HDHP for 2023 must have a deductible of at least $1,500 for self-only coverage or $3,000 for family coverage and must cap the beneficiary’s out-of-pocket spending at no more than $7,500 for self-only coverage or $15,000 for family coverage annually.
