The IRS recently released information about 2023 increases that may affect taxpayers. When planning for 2023, there are several things to keep in mind, including increased interest rates and increased retirement contribution limits.
INCREASED INTEREST RATES
Taxpayers can expect increased interest rates for the first quarter of 2023, according to a recent press release from the Internal Revenue Service (IRS).
Effective January 1, 2023, individuals’ rate for overpayment and underpayments will be 7% per year, compounded daily. The rate represents a 1% increase, up from 6% in the third quarter of 2022.
Here is the breakdown of the new interest rates:
7% for overpayments (payments made in excess of the amount owed), 6% for corporations.
7% for underpayments (taxes owed by not fully paid).
4.5% for the portion of a corporate overpayment exceeding $10,000.
9% for large corporate underpayments.
The IRS sets interest rates on a quarterly basis under the Internal Revenue Code. For all taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.
For corporations, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. For large corporations, the underpayment is the federal short-term rate plus 5 percentage points.
INCREASED RETIREMENT CONTRIBUTION LIMITS
The IRS also recently announced cost-of-living increases to individual contribution limits for 401(k) plans in 2023. The contribution amount increased from $20,500 in 2022 to $22,500 in 2023. Income ranges to determine eligibility for deductible contributions to IRAs and the Saver’s Credit also increased.
Here are some of the changes for 2023:
The limit on employee contributions to 401(k), 403(b), most 457 plans and the Thrift Savings Plan increased to $22,500.
The annual IRA contribution limit increased to $6,500. For employees age 50 and over, the IRA catch-up contribution limit remained at $1,000.
The catch-up contribution limit for employees age 50 and over who participate in 401(k), 403(b), most 457 plans and the Thrift Savings Plan increased to $7,500.
The catch-up contribution limit for employees age 50 and over who participate in SIMPLE plans increased to $3,500.
The amount individuals can contribute to SIMPLE retirement accounts increased to $15,500.
The phase-out range for traditional IRA contribution deductions increased.
The income phase-out range for Roth IRA contributions increased for taxpayers who file as single, head of household, and married filing jointly.
The income limit for the Saver’s Credit increased.
More information about 2023 cost-of-living adjustments is available in Notice 2022-55 on IRS.gov.
Now is a good time to review income and expenses and prepare for 2023. Increased interest rates and increased contribution limits may affect many aspects of taxpayers’ income. Your tax professional can help you develop a plan to make the most of your situation.
If you have questions, contact HFM today. Our professionals are well versed on the latest issues to provide our clients with professional, personalized services.