As an employer, it's important to stay informed about the latest changes and updates to federal regulations that may impact your business. If employers fail to keep up to date on these regulations, they may face penalties, fines, or legal issues. If you need expert assistance regarding your company’s compliance, you can always seek help from an HR Consulting Company like The Human Resource Consulting Group.
Here's a quick overview of some of the key changes that employers should know about for the 2023 tax year.
Federal 401(k) Limit Increase
The IRS increased the 401(k) limit to $22,500 for 2023, up from $20,500 for 2022. The chart below compares the limits for 401(k), 403(b), and most 457 plans between 2023 and 2022.
| Defined Contribution Plan Limits | 2023 | 2022 | Change |
| Maximum employee elective deferral | $22,500 | $20,500 | +$2,000 |
| Employee catch-up contribution (if age 50 or older by year-end)* | $7,500 | $6,500 | +$1,000 |
| Defined contribution maximum limit, all sources | $66,000 | $61,000 | +$5,000 |
| Defined contribution maximum limit (if age 50 or older by year-end); maximum contribution all sources, plus catch-up | $73,500 | $67,500 | +$6,000 |
| Employee compensation limit for calculating contributions | $330,000 | $305,000 | +$25,000 |
| Key employees' compensation threshold for nondiscrimination testing | $215,000 | $200,000 | +$15,000 |
| Highly compensated employees' threshold for nondiscrimination testing | $150,000 | $135,000 | +$15,000 |
For more information, please visit the IRS website.
Federal Tax Reduction for 2023 - The Inflation Reduction Act
The IRS's Inflation Reduction Act will bring some tax adjustments for the tax year 2023. Here are the highlights of changes for the tax year 2023:
- The standard deduction for married couples filing jointly rises to $27,700
- Marginal Rates: the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125
- The Alternative Minimum Tax exemption amount is $81,300 and begins to phase out at $578,150
- Maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children
- The monthly limitation for the qualified transportation fringe benefit and the monthly limit for qualified parking increases to $300
- The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050
- For Participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650 but not more than $3,950
- The foreign-earned income exclusion is $120,000
- Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000
- The annual exclusion for gifts increases to $17,000 for the calendar year 2023
- The maximum credit allowed for adoptions for the tax year 2023 is the amount of qualified adoption expenses up to $15,950
For more information, please visit the IRS website.
Note For Employers
Don't let the upcoming federal law changes catch you off guard. Stay ahead and act now to ensure compliance and protect your business. Contact The Human Resource Consulting Group for personalized guidance and support through the compliance process.
If you are an employer in the state of Connecticut, there are more state-specific labor law changes for 2023. Find out about it in this article.
