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PrintThe IRS released cost-of-living adjustments (COLAs) for 2023 reflecting any increases in the flexible spending arrangements (FSA) deferral limit, foreign earned income exclusion, and excludable transportation fringes, among other changes [Rev. Proc. 2022-38, 10-18-22].
Qualified transportation fringes
The amounts that may be excluded from gross income for employer-provided qualified transportation fringe benefits (transportation in a commuter highway vehicle and any transit pass) and qualified parking for 2023 increase to $300 ($280 in 2022).
Health FSAs
For plan years beginning in 2023, the dollar limitation under IRC §125(i) on voluntary employee salary reductions for contributions to health FSAs increases to $3,050 ($2,850 in 2022). For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount increases to $610 ($570 in 2022).
Standard deduction
The standard deduction amounts for 2023 increase to $27,700 for married couples filing jointly or surviving spouses ($25,900 in 2022), $13,850 for single taxpayers and married taxpayers filing separately ($12,950 in 2022), and $20,800 for heads of household ($19,400 in 2022).
Federal tax levies
The Tax Cuts and Jobs Act altered the way the amount of wages, salary, or other income exempt from a federal tax levy is calculated. For taxable years beginning in 2023, the dollar amount used to calculate the amount determined under IRC §6334(d)(4)(B) increases to $4,700 ($4,400 in 2022).
Foreign earned income exclusion
For 2023, the maximum foreign earned income exclusion amount under IRC §911(b)(2)(D)(i) is $120,000 (up from $112,000 in 2022). The maximum amount of the foreign housing cost exclusion is $16,800 (up from $15,680 in 2022).
Medical Savings Accounts
To be eligible to make contributions to a Medical Savings Account (or to have the employer make the contributions), an employee must be covered by a high deductible health plan. For 2023, a high deductible health plan is a plan with an annual deductible of $2,650-$3,950 for individual coverage (up from $2,450-$3,700 in 2022) and $5,300-$7,900 for family coverage (up from $4,950-$7,400 in 2022).
Maximum out-of-pocket expenses can be no more than $5,300 for individual coverage (up from $4,950 in 2022) and $9,650 for family coverage (up from $9,050 in 2022).
Long-term care insurance benefits
If a long-term care insurance contract makes per diem benefit payments, the amount of the payments that is excluded from income in 2023 is capped at $420 per day (up from $390 in 2022).
Adoption assistance
For 2023, the maximum amount that can be excluded from an employee's gross income for qualified adoption expenses under an employer's adoption assistance program is $15,950 (up from $14,890 in 2022). The maximum amount that can be excluded in connection with the adoption of a child with special needs is $15,950 (up from $14,890 in 2022).
The amount excludable from an employee's gross income begins to phase out for taxpayers with adjusted gross income of $239,230 (up from $223,410 in 2022) and is completely phased out for taxpayers with adjusted gross income of $279,230 (up from $263,410 in 2022).
Qualified small employer HRA
For 2023, a qualified small employer health reimbursement arrangement (QSEHRA) 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).
Pipeline construction industry per diem option
For 2023, an eligible employer may pay certain welders and heavy equipment mechanics up to $20 per hour for rig-related expenses that will be deemed substantiated under an accountable plan (up from $19 in 2022) and up to $13 per hour for fuel (up from $12 in 2022), when paid in accordance with Rev. Proc. 2002-41 (2002-23 IRB 1098).
Compliance