New tax laws impacting your 2023 taxes
2022 is in the rearview, which means that tax filing is on the horizon. Filing our taxes can seem overwhelming, so it’s easy to procrastinate. According to IPX 1031, Arizona ranks 12th when it comes to top procrastinators. By now, we should have a good handle on what to expect when filing our 2022 taxes, but with taxes on our minds, it’s a good time to understand the tax changes coming up in 2023. Below are a few changes to tax laws in 2023:
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Flat Income Tax Rate For Arizonans
As of Jan. 1, 2023, Arizona will implement a new flat tax rate of 2.5 %. State tax rates in Arizona were previously tiered, ranging from 2.59-4.5% based on income. Now, everyone will pay 2.5% across the board. Arizona is among eleven other states with a flat income tax and will have the lowest tax rate in the country (other than the states with no income tax).
Increase In Tax Deductions
Tax deductions lower the amount of taxable income.Standard deductions for single filers are increasing from $12,950 in 2022 to $13,850 in 2023. Married couples filing jointly will go from $25,900 in 2022 to $27,700 in 2023, and married filing separately will go from $12,950 to $13,850. Another option is to itemize your deductions if you suspect it may add up to more than the standard deduction.
Increase In HSA And FSA Contributions
The IRS announced last year that annual contributions toFlexible Spending Accounts (FSA) will increase in 2023. The maximum contribution for 2023 is $3,050, up from $2,850 in 2022. Additionally, if your employer’s plan allows for carryover of unused FSA amounts, you will be allowed to carry over $610 in 2023, up from $570 in 2022. Health Savings Accounts (HSA) will also increase, going from $3,650 in 2022 to $3850 in 2023. The HSA contribution limit for family coverage will be $7,750, up from $7,300. The adjustments represent approximately a 5.5 percent increase over 2022 contribution limits, whereas these limits rose by about 1.4 percent between 2021 and 2022.
Higher Limits To Retirement Plans
Retirement plans are a great way to set yourself up for the future but, the more you invest, the less taxable income you will have.The amount individuals can contribute to their 401K plans will go up this year. The contribution limit for employees who participate will be $22,500, up from $20,500 for 2022. Employees 50 and older can contribute an extra $7,500, up from $6,500. If you don’t have access to an employer-sponsored 401K plan, you can save for retirement in an IRA. The limit on annual contributions to an IRA will increase from $6,000 in 2022 to $6,500 in 2023 for individuals under the age of 50. For individuals 50 and older, the IRA contribution limit increased to $7500 in 2023, up $500 from 2022. According to Vanguard, 14% of investors maxed out employee deferrals in 2021.
Another significant change to note in 2023 that could impact your taxes is the minimum wage increase in Arizona. Effective Jan. 1, 2023, Arizona’s minimum wage increased from $12.80 to $13.85 per hour.
Being aware of tax changes can help you plan better when it comes time to file your taxes. The deadline to file your 2022 taxes is April 18, 2023. If you need help or advice on tax laws and your rights, contact a local attorney.
Author: Jennifer Sellers is a Senior Member at The Cavanagh Law Firm and specializes in employment and corporate law, both transactional and litigation, representing clients on a variety of employment matters including contracts, covenants not to compete and restrictive covenants, severance agreements and employee issues such as age, sex, race, religious or pregnancy discrimination.