Look Forward to Increases in Your 401(k) Limits
October 31, 2022
The amount you can contribute to your 401(k) plan in 2023 has increased to $22,500, up from $20,500 for 2022. The Internal Revenue Service (IRS) announced this change and issued technical guidance regarding all of the cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for the tax year 2023 in Notice 2022-55 posted on IRS.gov.
Highlights of changes for 2023
This contribution limit applies to employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.
The limit on annual contributions to an IRA increased to $6,500, up from $6,000. The IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost‑of‑living adjustment and remains $1,000.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has increased to $7,500, up from $6,500. Participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,000, starting in 2023.
The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE (Savings Incentive Match PLan for Employees) plans has increased to $3,500, up from $3,000. (This plan allows employees and employers to contribute to traditional IRAs set up for employees. It is ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.)
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit all increased for 2023.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)
In a traditional IRA deduction phase-out, taxpayers can deduct contributions if they meet certain conditions. If during the year either they or their spouse was covered by a retirement plan at work, the deduction may be phased out until it is eliminated, depending on filing status, and adjusted gross income (AGI):
- For single people covered by a workplace retirement plan, the IRA phase-out range is $73,000 to $83,000, up from $68,000 to $78,000.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $116,000 to $136,000, up from $109,000 to $129,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $218,000 and $228,000, up from $204,000 and $214,000.
- For married individuals filing a separate return who are covered by a workplace retirement plan, if they lived with their spouse at any time during the year, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
For a Roth IRA income phase-out, AGI ranges for taxpayers include the following provisions:
- The income phase-out range for singles and heads of household is $138,000 to $153,000, up from $129,000 to $144,000.
- The income phase-out range for married couples filing jointly is $218,000 to $228,000, up from $204,000 to $214,000.
- For married individuals filing a separate return, if they lived with their spouse at any time during the year, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
The 2023 income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers has increased to:
- $73,000 for married couples filing jointly, up from $68,000.
- $54,750 for heads of household, up from $51,000.
- $36,500 for singles and married individuals filing separately, up from $34,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
The amount individuals can contribute to their SIMPLE retirement accounts has increased to $15,500, up from $14,000.
After you review the IRS retirement plan changes for 2023, keep a record at insureyouknow.org of your retirement accounts so you’ll be able to take advantage of the new limits for your contributions and deductions.
Get Ready to File Your Taxes
January 14, 2022
Although April 15 is traditionally the Internal Revenue Services’ (IRS) tax deadline day, in 2022 you’ll have until Monday, April 18, to file your taxes for 2021. April 18 also will be the deadline to request an automatic extension for an extra six months to file a return although the payment of taxes remains the same.
The IRS encourages taxpayers to get informed about topics related to filing their federal tax returns in 2022. These topics include special steps related to charitable contributions, economic impact payments, and advance child tax credit payments. Taxpayers can visit IRS.gov/getready for online tools, publications, and other helpful resources for the filing season.
Collect year-end income documents
Gather all your year-end documents before you start preparing your 2021 tax return and have on hand:
- Social Security numbers (SSNs) of everyone listed on your tax return. You may have these numbers memorized but double-checking that the SSNs on your tax return are accurate will avoid processing delays.
- Bank account and routing numbers. You’ll need these for direct deposit refunds. Direct deposit is the fastest way for you to get your money and avoids a check getting lost, stolen, or returned to IRS as undeliverable.
- Forms W-2 from employer(s).
- Forms 1099 from banks, issuing agencies, and other payers including unemployment compensation, dividends, distributions from a pension, annuity, or retirement plan.
- Forms 1099-K, 1099-MISC, W-2, or other income statements if you are a worker in the gig economy.
- Form 1099-INT for interest received.
- Other income documents and records of virtual currency transactions.
- Form 1095-A, Health Insurance Marketplace Statement. You will need this form to reconcile advance payments or claim the premium tax credit.
- Letter 6419, 2021 Total Advance Child Tax Credit Payments, to reconcile your advance child tax credit payments.
- Letter 6475, Your 2021 Economic Impact Payment, to determine your eligibility to claim the Recovery Rebate Credit.
You’ll receive forms by mail or via access online from employers and financial institutions in January. You should carefully review the forms for the income you received in 2021. If any information shown on the forms is inaccurate, you should contact the payer immediately for a correction.
Here are some key items for you to know before you file this year:
Notice changes to the charitable contribution deduction
Taxpayers who don’t itemize deductions may qualify to take a deduction of up to $600 for married taxpayers filing joint returns and up to $300 for all other filers for cash contributions made in 2021 to qualifying organizations.
Check on advance child tax credit payments
Families who received advance payments will need to compare the advance child tax credit payments that they received in 2021 with the amount of the child tax credit that they can properly claim on their 2021 tax return.
- Taxpayers who received less than the amount for which they’re eligible will claim a credit for the remaining amount of child tax credit on their 2021 tax return.
- Eligible families who did not get monthly advance payments in 2021 can still get a lump-sum payment by claiming the child tax credit when they file a 2021 federal income tax return next year. This includes families who don’t normally need to file a return.
Early this year, the IRS will send Letter 6419 with the total amount of advance child tax credit payments taxpayers received in 2021. You should keep this and any other IRS letters about advance child tax credit payments with your tax records. You can also create or log in to IRS.gov online account to securely access your child tax credit payment amounts.
Claim the recovery rebate credit for economic impact payments
If you didn’t qualify for the third economic impact payment or did not receive the full amount, you may be eligible for the recovery rebate credit based on your 2021 tax information. You’ll need to file a 2021 tax return to claim the credit.
You’ll need the amount of your third economic impact payment and any plus-up payments received to calculate your correct 2021 recovery rebate credit amount when you file your tax return.
The IRS also will send early this year Letter 6475 that contains the total amount of the third economic impact payment and any plus-up payments received. You should keep this and any other IRS letters about your stimulus payments with other tax records. You also can create or log in to IRS.gov online account to securely access your economic impact payment amounts.
Report unemployment compensation received
In 2021, many people received unemployment compensation that is taxable and must be reported on their income tax returns. If you received unemployment benefits, you should receive Form 1099-G, Government Payments, from your state unemployment insurance agency in January either by mail or electronically. Check your state’s unemployment compensation website for more information. Form 1099-G reports the amount of unemployment compensation received in Box 1 and any federal income tax withheld in Box 4. Be sure to include these amounts on your 2021 federal tax return. Find more information on unemployment benefits in Publication 525.
Choose a reputable tax return preparer
As you get ready to file your 2021 tax return, you may be considering hiring a tax return preparer. The IRS reminds taxpayers to choose a tax return preparer wisely. This is important because you are responsible for all the information on your return, no matter who prepares it for you.
There are different kinds of tax preparers, and your needs will help determine which kind of preparer is best for you. With that in mind, here are some quick tips from the IRS to help you choose a preparer.
- Check the IRS Directory of Preparers. While it is not a complete listing of tax return preparers, it does include those who are enrolled agents, CPAs, and attorneys, as well as those who participate in the Annual Filing Season Program.
- Check the preparer’s history with the Better Business Bureau. Taxpayers can verify an enrolled agent’s status on IRS.gov.
- Ask about fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of their refund into their financial accounts.
- Be wary of tax return preparers who claim they can get larger refunds than others.
- Ask if they plan to use e-file.
- Make sure the preparer is available. People should consider whether the individual or firm will be around for months or years after filing the return. Taxpayers should do this because they might need the preparer to answer questions about the preparation of the tax return.
- Ensure the preparer signs and includes their preparer tax identification number (PTIN). Paid tax return preparers must have a PTIN to prepare tax returns.
- Check the person’s credentials. Only attorneys, CPAs, and enrolled agents can represent taxpayers before the IRS in tax matters. Other tax return preparers who participate in the IRS Annual Filing Season Program have limited practice rights to represent taxpayers during audits of returns they prepared.
Review Publication 5349: “Year-Round Tax Planning is for Everyone”
Life changes can affect your expected refunds or the amount of tax you owe. These changes include things such as employment status, marital status, and financial gains or losses. Publication 5349 provides tips on developing habits throughout the year that will help make tax preparation easier.
When you file your 2021 tax return, keep a record of the forms you submit to the IRS at insureyouknow.org. Get a jump on your 2022 tax return by organizing your tax records, including Forms W-2 and W-9 from employers, Forms 1099 from banks and other payers, other income documents, and records of virtual currency transactions. Keep track of your tax records as you receive them at insureyouknow.org. Having records organized makes preparing a tax return easier. It may also help you discover potentially overlooked deductions or credits.
Death (of a Spouse) and Taxes
November 16, 2021
In a “normal” year, about 1.5 million Americans become widows and widowers, but the COVID-19 pandemic has significantly increased that annual statistic. According to a recent article in The Wall Street Journal, the National Center for Family and Marriage Research at Bowling Green State University estimates that about 380,000 of the more than 700,000 people in the United States who have died from COVID-19 were married.
Under “normal” circumstances, it may be difficult to comply with tax requirements and deadlines; filing as a widow(er) presents additional challenges. This is a complex topic with the following issues to consider.
Filing the First Year
The IRS stipulates that the year that your spouse dies:
- You can still file a joint return if you didn’t remarry and the executor approves the joint return.
- If either spouse was a nonresident alien at any time during the year, the surviving spouse can’t file a joint return.
- If you do file jointly, include all your income and deductions for the full year, but only your spouse’s income and deductions until the date of death.
- If the deceased spouse owes any taxes that the estate can’t pay, you as the surviving spouse may be liable for the amounts owed.
Filing in the Next Two Years
For two tax years after the year your spouse died, you can file as a qualifying widow(er). This filing status gives you a higher standard deduction and lower tax rate than filing as a single person. You must meet these requirements:
- You haven’t remarried.
- You must have a dependent (not a foster) child who lived with you all year, and you must have paid more than half the maintenance costs of your home.
- You must have been able to file jointly in the year of your spouse’s death, even if you didn’t.
Notifying the IRS
If you are a widow(er) who qualifies to file a joint return, take the following steps:
- Across the top of your IRS Form 1040 tax return for the year of death—above the area where you enter your address, write “Deceased,” your spouse’s name, and the date of death.
- When you’re a surviving spouse filing a joint return and a personal representative hasn’t been appointed, you should sign the return and write “filing as surviving spouse” in the signature area below your signature.
- When you’re a surviving spouse filing a joint return and a personal representative has been appointed, you and the personal representative should sign the return.
- A decedent taxpayer’s tax return can be filed electronically. Follow the specific directions provided by your preparation software for proper signature and notation requirements.
- The deadline to file a final return is the tax filing deadline of the year following the taxpayer’s death.
- If you are a surviving spouse filing a joint return alone, you should sign the return and write “filing as surviving spouse” in the space for your deceased spouse’s signature.
- If a refund is due, there’s one more step. You also should complete and file with the final return a copy of Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. Although the IRS says you don’t have to file Form 1310 if you are a surviving spouse filing a joint return, you probably should file the form to prevent possible delays.
Other forms and documents you may need include:
- W-2s, 1099s and other tax forms for the year of death, reporting income or expenses paid before the person died.
- Death certificate to prove the date of death in the tax year being reported.
- Form 56 filed by a trustee, executor, administrator, or other person to let the IRS know who is responsible for the person’s estate.
- Form 1041, “U.S. Income Tax Return for Estates and Trusts” reports receipt of more than $600 in annual gross income (such as dividends, interest, proceeds from the sale of assets) after the person died.
- IRS Publication 559, “Survivors, Executors and Administrators” provides more information about legal requirements.
Note: You can’t file a final joint return with your deceased spouse if you as the surviving spouse remarried before the end of the year of death. The filing status of the decedent in this instance is married filing separately.
Filing an Estate-tax Return
The current estate- and gift-tax exemption is $11.7 million per individual, so not many estates owe tax—only about 1,900 did for 2020, according to the Tax Policy Center. Executors don’t need to file a return if the decedent’s estate is below the exemption.
They may want to file one, however, because then the surviving spouse can have the partner’s unused exemption and add it to their own in many cases.
Estate taxes are normally due nine months after the date of death. But the IRS allows executors to claim the unused exemption for the spouse up to two years after the date of death, in many cases.
Selling a Home and Resulting Exemptions
Survivors who sell a home may take up to $500,000 of home-sale profit tax-free if they haven’t remarried and sell within two years of the partner’s date of death. If they sell later, the exemption drops to $250,000, the standard amount for single filers.
Dealing with Retirement Accounts
Surviving spouses can roll over inherited retirement accounts such as 401(k)s and IRAs into their own names, and financial advisers routinely recommend this move.
A new widow(er) should carefully consider options. It’s possible to divide retirement accounts such as IRAs, and to roll over some but not all assets into the survivor’s name. This would leave the remainder in an inherited IRA available for penalty-free payouts to younger spouses.
Either way, heirs of retirement accounts should be sure to name new heirs of their own.
Heirs of these accounts who will face higher taxes as single filers may also want to convert assets to Roth IRAs, which can have tax-free withdrawals—especially if they can convert while still eligible for joint-filing rates and brackets.
Cashing U.S. Savings Bonds
There’s a special rule for U.S. Savings Bonds, from which income generally accrues tax-free until the bonds are cashed in. When the bond owner dies, the accrued interest may be treated as income in respect of a decedent.
In that case, the new owner of the bonds becomes responsible for the tax on the interest accrued during the life of the decedent. (The tax isn’t due, however, until the new owner cashes in the bonds.)
Alternatively, the interest accrued up to the date of death can be reported on the decedent’s final income tax return. That could be a tax-saving choice if he or she is in a lower tax bracket than the beneficiary. If that method is chosen, the person who gets the bonds only includes in income the interest earned after the date of death.
All deductible expenses paid before death can be written off on the final return. In addition, medical bills paid within one year after death may be treated as having been paid by the decedent at the time the expenses were incurred. That means the cost of a final illness can be deducted on the final return even if the bills were not paid until after death.
If deductions are not itemized on the final return, the full standard deduction may be claimed, regardless of when during the year the taxpayer died. Even if the death occurred on January 1, the full standard deduction is available.
Inheriting Property and Money
For deaths that occurred in years other than 2010, the tax basis of any property a taxpayer owns at the time of his or her death is “stepped up” to its date-of-death value. Since the basis is the amount from which any gain or loss will be figured when the new owner ultimately sells the property, this means that the tax on any appreciation that occurred during the taxpayer’s life is essentially forgiven.
The person who inherits the property—a house, say, or stocks and bonds— would owe tax only on appreciation after the time of death. It’s important that you pinpoint date-of-death value as soon as possible—the executor should be able to help—to avoid hassles later on when you sell it. If assets have lost value during the original owner’s life, the tax basis is stepped down to date-of-death value.
Money you inherit is generally not subject to federal income tax. If you inherit a $100,000 certificate of deposit, for example, the $100,000 is not taxable. Only interest on it from the time you become the owner is taxed. If you receive interest that accrued but was not paid prior to the owner’s death, however, it is considered income in respect of a decedent and is taxable on your return.
The death of a spouse not only presents emotional distress resulting from the loss of a loved one, but it also forces a widow(er) to deal with income tax issues never before faced. By keeping at insureyouknow.org, copies of a spouse’s death certificate, medical bills, income records, property assessments, and wills, you’ll be able to access required documents when you file your income tax return following the death of a spouse.