5 Tax Changes You Should Know About for 2023

Keep this information on your radar.

The U.S. tax code has a lot of rules, and those can change from one year to the next. But it's important to keep tabs on major changes that could impact you financially. Here are a few such changes to know about going into 2023.

1. A new set of tax brackets

Wage earners in the U.S. pay taxes on a marginal basis. This means you pay a higher rate of tax on your highest dollars of earnings, and less taxes on your lowest earnings. Your income and filing status dictate what tax bracket you fall into. Here are the new tax brackets taking effect in 2023:

2. Higher 401(k) contribution limits

Saving in an employer-sponsored 401(k) plan is a great way to set yourself up with a nice nest egg for retirement. Plus, the more money you put into a traditional 401(k), the more income you get to shield from the IRS for tax purposes.

Currently, 401(k) plan contributions max out at $20,500 for workers under age 50 and $27,000 for those 50 and older. Next year, 401(k) contribution limits are rising to $22,500 for workers under 50 and $30,000 for those 50 and older. You should also know that if your employer offers a 401(k) match, the money your company puts into your account will not count toward these limits.

3. Higher IRA contribution limits

If you don't have access to an employer-sponsored 401(k) plan (which may be the case if you work for a small business or are self-employed), you can save for retirement in an IRA instead. This year, IRA contribution limits are $6,000 for workers under age 50 and $7,000 for those 50 and over. Next year, these amounts are increasing by $500, so workers under 50 will have a maximum contribution limit of $6,500 and those 50 and over may contribute up to $7,500.

4. Higher HSA contribution limits

If you're enrolled in a high-deductible health insurance plan, your plan may be compatible with a health savings account, or HSA. HSAs let you set aside pre-tax funds for healthcare spending purposes. This year, HSA limits max out at $3,650 if you have self-only coverage and $7,300 for family coverage. There's also a $1,000 catch-up for savers 55 and over.

Next year, HSA contribution limits will rise to $3,850 for self-only coverage and $7,750 for family coverage. That $1,000 catch-up amount will stay the same.

5. Higher FSA contribution limits

If you're not eligible for a health savings account, it pays to look into a flexible spending account, which will also give you a tax break on the money you set aside for medical costs. The difference between the two is that HSA funds never expire, and FSA funds do. So you'll need to be careful about the money you contribute to your 2023 FSA, to ensure you can spend it all on eligible expenses before the end of the year.

This year, the maximum FSA contribution is $2,850. Next year, it will rise to $3,050.

Stay informed

Knowing about tax changes like these could help you better plan for your IRS bill and reap more savings. Be mindful of these numbers, whether you're trying to ramp up your retirement savings, cover healthcare costs, or simply keep your taxes as low as possible.