The IRS has announced the cost-of-living adjustments (COLA) for the items below for the 2023 tax year [Rev Proc 2022-38, IR 2022-182].
Qualified transportation fringe benefits. For 2023, an employee will be able to exclude up to $300 a month for qualified parking expenses, and up to $300 per month or the combined value of transit passes and transportation in a commuter highway vehicle ($280 per month in 2022).
Long-term care premiums. Amounts paid for insurance that covers qualified long-term care services are treated as medical expenses up to specified dollar limits that vary with the age of the taxpayer as of the close of the tax year. For a taxpayer age 40 or younger, the 2023 limit increases to $480 ($450 in 2022); older than 40 but not more than 50, $890 ($850 in 2022); older than 50 but not more than 60, $1,790 ($1,690 in 2022); older than 60 but not more than 70, $4,770 ($4,510 in 2022); and older than 70, $5,960 ($5,640 in 2022).
Payments received under qualified long-term care insurance. Amounts received under a qualified long-term care insurance contract are generally excludable from income as amounts received for personal injuries and sickness, subject to a per diem limitation, which will be $420 in 2023 ($390 in 2022). For further information on long-term care insurance.
Archer MSAs. For Archer MSA purposes, in 2023, a “high deductible health plan” will be a health plan that: (1) in the case of self-only coverage, the annual deductible is at least $2,650 and not more than $3,950 (up from $2,450 and $3,700 in 2022); in the case of family coverage, the annual deductible is at least $5,300 and not more than $7,900 (up from $4,950 and $7,400 in 2022); and (2) the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $5,300 for self-only coverage (up from $4,950 in 2022), and $9,650 for family coverage (up from $9,050 in 2022). For further information on Archer MSAs.
Limit on health FSA salary reduction contributions under a cafeteria plan. For purposes of determining whether a health flexible spending account (health FSA) benefit will be a “qualified benefit” under the 2023 plan year, the cafeteria plan must provide that an employee may not elect to have salary reduction contributions in excess of $3,050 made to the health FSA ($2,850 in 2022). The maximum carryover amount for a cafeteria plan that permits carryover is $610 ($570 in 2022).
Small employer health insurance credit. An eligible small employer may claim, subject to a phaseout, a credit equal to 50% of nonelective contributions for health insurance for its employees. The credit is reduced under certain circumstances, including if the average annual full-time equivalent wages per employee are more than $30,700 for 2023 ($28,700 in 2022).
Qualified small employer HRA. For 2023, a qualified small employer HRA (see Payroll Guide ¶ 3405) is an arrangement which, among other requirements, makes payments and reimbursements for qualifying medical care expenses of an eligible employee that do not exceed $5,850 (up from $5,450 for 2022), or $11,800 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee (up from $11,050 for 2022).
Adoption exclusion. Employer-provided adoption assistance may be excluded from an eligible employee’s income for purposes of FIT and FITW if the benefits are provided as part of a qualified adoption assistance program (see Payroll Guide ¶ 3542). The adoption exclusion per child (whether or not he or she has special needs) will be limited to $15,950 in 2023 (up from $14,890 in 2022). The adoption exclusion will begin to phase out for taxpayers in 2023 with adjusted gross income (AGI) of over $239,230 and will be fully eliminated when AGI reaches $279,230. These figures were $223,410 and $263,410, respectively, in the 2022 tax year.
Wage levy. The weekly amount of an individual’s salary, wages, etc. exempt from the levy for 2023 is $4,700 multiplied by the number of the taxpayer’s dependents for the tax year of the levy ($4,400 in 2022), plus the taxpayer’s standard deduction, divided by 52.
Property exempt from levy. The value of property exempt from levy under (fuel, provisions, furniture, and other household personal effects, as well as arms for personal use, livestock, and poultry) may not exceed $10,810 for levies in 2023 (up from $10,090 in 2022). The value of property exempt from levy under (books and tools necessary for the trade, business, or profession of the taxpayer) may not exceed $5,400 for levies issued in 2023 (up from $5,050 in 2022). For further information on tax levies.
Deemed substantiation for reimbursement of employee expenses. Under an optional deemed substantiation rule, eligible employers in the pipeline construction industry can provide reimbursements that will be treated as made under an accountable plan to employees who furnish welding rigs or mechanics rigs (see Rev Proc 2002-41, 2002-1 CB 1098). For the calendar year 2023, an eligible employer may pay up to $20 per hour ($19 per hour in 2022) for rig-related expenses. If the employer provides fuel or otherwise reimburses fuel expenses, an eligible employer may pay up to $13 per hour ($12 per hour in 2022).
Foreign earned income exclusion. Individuals who have a tax home in a foreign country, and who satisfy either a bona fide foreign residence test or a foreign physical presence test, may elect to exclude a certain amount of their foreign earned income from gross income in a tax year. The foreign earned income exclusion amount will increase from $112,000 to $120,000 in 2023