While 2023 federal tax changes will certainly have an impact on families with special needs, several states have also made tax changes this year that will impact such families. Keep reading to learn about the 2023 state tax changes that most benefit families with special needs.
2023 Alabama State Tax Changes
As of January 1, 2023, Alabama will exempt the first $6,000 of otherwise taxable retirement income for those 65 or older. This change will be especially beneficial to families with elderly members who receive retirement income, including those that are caring for a spouse with special needs or a disabled adult child who needs extraordinary support.
2023 Arizona State Tax Changes
On January 1, 2023, Arizona’s state tax converted to a flat rate of 2.5 percent. Knowing your have just one tax rate to contend with not only eliminates extra variables during tax preparation, it also simplifies tax planning.
2023 Colorado State Tax Changes
Beginning January 1, 2023, sales of diapers and menstrual products became exempt from Colorado state sales tax. Parents of young children know that diapers can be a significant expense. Many children with special needs have to wear diapers for extended period of time. Some have to wear them for a lifetime. In addition, some individuals develop bladder and/or bowel incontinence later in life due to paralysis, neurological disorders, other medical conditions, medication side effects, or age-related factors. That said, families for whom diapers are a substantial long-term expense will certainly welcome the savings they will realize for the tax exemption on those products. Likewise, women will reap significant savings over time from the tax exemption on menstrual products.
2023 Delaware State Tax Changes
Delaware’s military pension exclusion for military retirees under the age of 60 increased from $2,000 to $12,500 on January 1, 2023. The military pension exclusion will certainly make a big difference in the pocketbooks of Delaware military families with special needs.
2023 Georgia State Tax Changes
Effective January 1, 2023, Georgia’s standard deduction increased from $4,600 to $5,400 for single filers and from $6,000 to $7,100 for joint filers. Every little bit helps when you have additional expenses related to caring for loved ones with special needs. Increases in standard deductions could be the difference between getting a bigger state income tax refund for some families and receiving a smaller tax bill for others.
2023 Hawaii State Tax Changes
Hawaii’s earned income tax credit (EITC) became refundable in 2023. This change should put money directly in the wallets of many taxpayers who reside in Hawaii.
2023 Idaho State Tax Changes
Effective January 2023, Idaho has adopted a flat tax rate of 5.8 percent. The new flat tax rate will streamline tax preparation and simplify tax planning.
2023 Illinois State Tax Changes
On January 1, 2023, the Illinois EITC increased from 18 to 20 percent of the federal credit amount. This increase will result in a bigger state income tax refund for eligible Illinois filers.
2023 Indiana State Tax Changes
In 2023, Indiana had several changes that could impact families with special needs. The state’s flat individual income tax rate decreased from 3.23 to 3.15 percent for 2023. The Indiana mortgage deduction was repealed. However, its property tax homestead deduction increased by $3,000. In addition, senior citizens may claim a tax deduction on homes valued up to $240,000, which is a $40,000 increase from the prior year.
2023 Iowa State Tax Changes
Iowa also implemented a number of tax changes that could affect families with special needs in 2023. Effective January 1, Iowa decreased its number of individual income tax rates from nine to four, and decreased its maximum tax rate from 8.53 percent to 6 percent. Iowa’s alternative minimum tax for 2023 was set to 6 percent. Both Iowa’s standard deduction and state deduction for federal taxes were repealed. Iowa has made retirement income and certain farm rental income tax exempt. The state has moved to become more friendly to legacy wealth-builders by decreasing the inheritance tax, making them 60% less than the original rates. Iowa has also exempted diapers and menstrual products from sales tax.
2023 Kansas State Tax Changes
On January 1, 2023, Kansas reduced sales taxes on groceries from the general sales tax rate of 6.5 percent to 4 percent. This 2023 state tax change will result in more groceries in the carts of Kansas taxpayers for less money, as well as more change in their pockets.
2023 Kentucky State Tax Changes
A number of 2023 tax changes are in effect in Kentucky. The individual income tax rate has been reduced from 5 percent to 4.5 percent. Thirty-four consumer and personal services have become subject to sales and use tax. Some of these newly taxed services could be of particular interest to families with special needs, including leisure, recreational and athletic instructional services, and recreational camp tuition and fees. Campgrounds and RV parks are now subject to a 1 percent state transient room tax. Finally, electric vehicles are subject to a new $120 registration and renewal fee, and a 3 cents per kilowatt hour excise tax now applies to electric vehicle power.
2023 Maine State Tax Changes
Effective January 1, 2023, Maine expanded its residential electricity sales tax exemption. Eligible customers who are enrolled in either a low-income assistance administered by the Maine State Housing Authority or an arrearage management program administered by electric transmission and distribution utilities are now exempt from sales tax residential electricity use inclusive of and beyond the first 750 kilowatt hours.
2023 Maryland State Tax Changes
In 2023, Maryland’s refundable EITC returned to its pre-2020 rate of 28 percent. While Maryland taxpayers will definitely notice the decrease in their refundable EITC from 45 percent to 28 percent, they will still appreciate having a refundable EITC that can increase their bank account balance.
2023 Mississippi State Tax Changes
A flat tax rate of 5 percent on income exceeding $10,000 went into effect in Mississippi this year. This 2023 state tax change puts Mississippi on par with other states who are implementing flat tax rates to help taxpayers streamline their tax preparation and tax planning processes.
2023 Missouri State Tax Changes
As of January 1, 2023, Missouri has reduced its top marginal individual income tax rate from 5.3 percent to 4.95 percent. Missouri has also increased the amount of exempt individual income from $100 to $1,000.
2023 Nebraska State Tax Changes
On January 1, 2023, Nebraska’s top marginal individual income tax rate was reduced from 6.84 percent to 6.64 percent. In a move that may be of particular interest to families with special needs, taxpayers may now deduct 60 percent of Social Security benefits included in federal adjusted gross income (AGI), which is a significant increase from the 40% that was deductible in 2022. In addition, in a move that will benefit legacy wealth-builders, Nebraska reduced its inheritance tax for all types of beneficiaries by lowering tax rates and increasing exemptions.
2023 New Hampshire State Tax Changes
In 2023, New Hampshire reduced its tax on income from interest and dividends from 5 percent to 4 percent, which will benefit special needs families that are working to build legacy wealth. This will be a welcome change for families with special needs that are trying to build their savings and grow their investment income.
2023 New York State Tax Changes
In 2023, New York reduced its tax rate on income between $13,900 and $80,650 for single filers and between $27,900 and $161,550 for joint filers to 5.5 percent. The tax rate for single filers with income between $80,650 and $215,400 is now 5.85 percent, while the tax rate for joint filers with income between $161,500 and $323,200 is set at 6 percent.
2023 North Carolina State Tax Changes
In 2023, North Carolina’s decreased from 4.99 percent to 4.75 percent. Beginning this year, taxpayers are now required to add expenses that were deducted on the federal taxes that were paid using forgiven Paycheck Protection Program (PPP) loans back on the state income tax forms. The add-back, which was enacted in 2020, had its implementation delayed until January 1, 2023.
2023 Rhode Island State Tax Changes
As of January 1, 2023, Rhode Island taxpayers can now subtract military service pension benefits included in their federal AGI from the state taxable income. This change will go a long way toward helping Rhode Island taxpayers decrease their tax liability…or increase their refund.
2023 South Dakota State Tax Changes
As of January 1, 2023, South Dakota is adjusting its property valuation limit for inflation when determining eligibility for property tax assessment freezes for qualifying residents who are age 65 or older or who are disabled. This should be a big help for South Dakota property owners as the effects of rising inflation continues to impact families, including families with special needs, around the country.
2023 Virginia State Tax Changes
In 2023, retired service members age 55 and older will be elgible to subtract up to $20,000 in military benefits from their taxable income, which is double the amount from 2022. In addition, Virginia has repealed its 1.5 percent sales tax on groceries and certain personal care products; although, the 1 percent local sales tax still applies to those items.
2023 Washington State Tax Changes
As of January 1, 2023, qualifying transfers of real property that is to be used to provide low-income housing are exempt from the real estate excise tax (REET). This will be a huge benefit for Washington taxpayers whose investments include developing and providing housing for low income residents.
2023 Wisconsin State Tax Changes
Beginning on January 1, 2023, Wisconsin began allowing taxpayers to, in alignment with the federal net capital loss deduction, deduct up to $3,000 in capital losses against ordinary income annually. This is a major increase from its previous limit of $500.
Additional Information About 2023 State Tax Changes
For more information about 2023 state tax changes, check with your state’s department of revenue. Officials in your state should be able to provide you with additional information about changes to your state taxes and answer any questions you may have.
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