2023 Tax and Financial Update

Inflation was the big story in 2022, and for 2023 it brings some benefits (increased social security benefits, bigger tax deductions) but also some detriments (higher Medicare surcharges). The SECURE Act 2.0, which was passed at year-end, will have a big impact for retirees, while increased retirement contribution limits will benefit those still saving for retirement.

Here are the highlights. To see all the details, please see our Key Financial Data summary.

Tax brackets, deductions increased

In 2023 the tax rates will be the same as in 2022. However, the tax brackets that determine how much income is taxed at each rate are indexed according to inflation. This means more income will be taxed in lower tax brackets than last year. 

The tax rates on capital gains and dividends are also indexed for inflation, so while the 2023 tax rates are the same as in 2022, the level of income that falls in each bracket increased. In 2023, there is a 0% federal tax on dividends and capital gains if your taxable income falls below $44,625 for a single filer ($89,250 joint).


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The standard tax deduction increases from $25,900 in 2022 to $27, 700 in 2023. That’s a 7% increase- the biggest automatic inflation adjusted increase since 1985. The additional standard deduction for people over age 65 also increases from $1,400 to $1,500.

Social Security- Big cost of living increases for 2023

Social Security beneficiaries will receive an 8.7% cost of living adjustment to their benefits, an increase from the 5.9% cost of living adjustment from 2022. The estimated maximum monthly benefit is $3,627 in 2023, up slightly from $3,345 in 2022.

Social Security benefits will continue to be taxable depending on your overall income. The income thresholds at which benefits start to be taxed depends on your “provisional” income, which is also known as “combined” income. In 2023, if your provisional income is under $25,000 ($32,000 for joint filers), there is no tax on your Social Security benefits. If your provisional income is between $25,000 and $34,000 ($32,000-$44,000 for joint filers), then 50% of your Social Security benefits are taxable. If your provisional income is above $34,000 ($44,000 for joint filers), then 85% of your Social Security benefits are taxable.


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Gift and estate tax limits increased

The annual exclusion from gift and estate taxes has increased to $17,000 in 2023, up from $16,000 in 2023. The lifetime exclusion from estate and gift taxes has increased to $12,920,000 in 2023, up from $12,060,000 in 2022. Note that these extra-large exclusions from gift and estate tax are due to “sunset” (expire) at the end of 2025, when they will be cut nearly in half.

Retirement plan contribution limits increased

The total amount that employers and employees combined can contribute to a 401(k) or similar defined-contribution plan rises to $66,000 in 2023, up from $61,000 in 2022. The maximum annual employee contribution increases from $20,500 in 2022 to $22,500 in 2023. The catch-up contribution for people aged 50 and older increases to $7,500 in 2023 up from $6,500 in 2022. The annual benefit limit for defined-benefit plans increased to $265,000 from $245,000 in 2022.

Medicare surcharges

As in 2022, in 2023 the income brackets used to determine Medicare premium surcharges for high-income retirees will be indexed to inflation. As a result, some retirees may experience an increase in their Medicare surcharge costs next year. The standard premium amount in 2023 is $164.90 per month, but the income-based surcharges can drive the premiums up to as high as $560.50 per month for those with MAGI (Modified Adjusted Gross Income) above $500,000 ($750,000 for joint filers.)


Invest $100K the Right Way

At some point, you may find yourself with $100,000 in the bank and questions on how to invest it.

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How can I best navigate the changes?

Changes to tax laws, estate planning, retirement planning, and investment planning are constantly happening. It pays to work with a financial advisor who you can trust to look after your best interests. At Blankinship & Foster, our Wealth Management service includes in depth and proactive retirement and tax planning specific to your unique situation, goals, and objectives. Contact us to learn more about how we can help bring clarity, confidence, and direction to your financial future.

Disclosure: The opinions expressed within this blog post are as of the date of publication and are provided for informational purposes only. Content will not be updated after publication and should not be considered current after the publication date. All opinions are subject to change without notice, and due to changes in the market or economic conditions may not necessarily come to pass. Nothing contained herein should be construed as a comprehensive statement of the matters discussed, considered investment, financial, legal, or tax advice, or a recommendation to buy or sell any securities, and no investment decision should be made based solely on any information provided herein. Links to third party content are included for convenience only, we do not endorse, sponsor, or recommend any of the third parties or their websites and do not guarantee the adequacy of information contained within their websites.

About Jon Beyrer

Jon Beyrer, EA, CFP® is a partner of Blankinship & Foster LLC and is the firm’s Chief Compliance Officer. As a lead advisor, he focuses on helping families achieve their goals with sound wealth planning. In the community, Jon serves on several boards and is co-founder of the Professional Alliance for Children, a legal/financial charity for families of ill children. He has been quoted in The Wall Street Journal, The New York Times, and the Journal of Financial Planning. Jon lives in San Diego with his family.

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