Published: January 2023
During this past year there has been no new tax legislation passed. There were bills passed which affect individual taxpayers.
Inflation Reduction Act
- Extended the Residential Clean Energy Credit and increased the amount of the credit. Also removed the lifetime credit limitation and instead there will now be annual limits.
- Changes were made to the Electric Car Credit now called the Clean Vehicle Credit. Most changes take effect in 2023. As of August 17th you will no longer qualify for the credit if the vehicle isn’t assembled in North America. If you purchased an electric vehicle before August 16th but delivery wasn’t taken until after August 16th you still qualify under the old rules. Beginning in 2023, the number of units sold limits have been eliminated. There are now limits based on income, price of vehicle and where the battery components are made. Also used vehicles can now qualify for a credit.
The Secure Act 2.0 made changes to increase retirement savings.
- Currently a Required Minimum Distribution (RMD) must begin at age 72. Under the Secure Act 2.0 the age for RMD will increase to 73 in 2023, 74 in 2030 and 75 in 2033.
- Beginning in 2023 matching contributions can be made to a Roth account if the employee is 100% vested in the plan. Previously these matching contributions could only be made to pre-tax accounts.
- The limit on catch-up contributions to 401(K), 403(b) and 457(b) plans which currently is $ 6,500 for employees over 50 years of age would increase to $ 10,000 for employees who attain the ages of 62, 63 and 64 beginning in 2024.
- Currently Roth accounts in a 401(k) or 403(b) are subject to RMD rules. Beginning in 2024 these accounts will no longer be subject to RMD.
- Currently catch-up contributions can only be made on a pretax basis. Beginning in 2023, matching contributions can be made to Roth accounts.
- Beginning in 2024 plans can permit one withdrawal per calendar year up to $1,000 for immediate financial needs related to necessary personal emergency expenditures. This distribution will not be subject to the 10% premature withdrawal penalty. This distribution may be repaid within 3 years.
- Beginning in 2024, employers will be allowed to make matching 401(k) contributions to employees qualified student loan account.
If Congress does not pass legislation temporary tax provisions expired December 31, 2022. These include the expanded child and dependent care tax credit, charitable contribution for non-itemizers, deductibility of mortgage insurance premiums.
The IRS updated the table used to calculate required minimum distribution (RMD) to account for longer life expectancies beginning in 2022. That means RMDs should be smaller starting in 2022.
New Jersey College Affordability Act
If your income is $ 200,000 or less you can now deduct:
- Up to $10,000 of contributions made to a New Jersey Better Educational Savings Trust (NJBEST) college savings account during the year.
- Up to $2,500 of principal and interest paid on student loans during the year under the New Jersey College Loans to Assist State Students (NJCLASS) program.
- Up to $10,000 for tuition costs if you, your spouse, or your dependent enroll in, or attend, a New Jersey institution of higher education.