IRS Announces Inflation Adjustments for Tax Year 2023
Angela Lawrence, Paraprofessional at Klatzkin, contributed to this post.
In Revenue Procedure 2022-38, released on October 19, 2022, the IRS issued the tax year 2023 annual inflation adjustments. It includes changes to over 60 tax provisions, many of which will be relevant to taxpayers filing their returns in 2024.
Standard Deduction
- $27,700 for married couples filing jointly (up $1,800 from the previous year)
- $13,850 for single taxpayers and married couples filing separately (up $900)
- $20,800 for heads of household (up $1,400)
Marginal Tax Rates
For 2023, the top tax rate will remain 37% for individuals with incomes over $578,125 and married couples filing jointly with incomes over $693,750. The revised rates are:
- 35% for individual single taxpayer incomes over $231,250 ($462,500 for married couples filing jointly)
- 32% for individual single taxpayer incomes over $182,100 ($364,200 for married couples filing jointly)
- 24% for individual single taxpayer incomes over $95,375 ($190,750 for married couples filing jointly)
- 22% for individual single taxpayer incomes over $44,725 ($89,450 for married couples filing jointly)
- 12% for individual single taxpayer incomes over $11,000 ($22,000 for married couples filing jointly)
- 10% for individual single taxpayer incomes of $11,000 or less ($22,000 for married couples filing jointly)
Alternative Minimum Tax
The alternative minimum tax exemption amount for single filers will be $81,300 and will begin to phase out at $578,150. For married couples filing jointly, the exemption will be $126,500 and will begin to phase out at $1,156,300.
Earned Income Tax Credit
For 2023, the maximum EITC amount will be $7,430 for qualified taxpayers with three or more qualifying children (up from $6,935). Rev. Proc. 2022-38 contains more information about EITC categories, income thresholds, and phase-outs.
Health Flexible Savings Accounts
The dollar limitation for employee salary reductions for contributions to FSAs will increase to $3,050. For plans that allow carryover of unused amounts, the maximum carryover will increase by $40 to $610 in 2023.
Annual Gift Tax Exclusion
The annual gift tax exclusion will increase to $17,000 in 2023, up from $16,000.
Estate Tax Exclusion
For estates of decedents who pass away during 2023, the basic exclusion amount will increase from $12,060,000 to $12,920,000.
What’s Not Changing?
Some items that were previously indexed for inflation will not be adjusted. The personal exemption will remain at 0, as it was eliminated by the Tax Cuts and Jobs Act. As since 2018, there is no limitation on itemized deductions; this was also eliminated by the Tax Cuts and Jobs Act.
What’s New in 2023?
The Inflation Reduction Act has extended certain energy-related tax breaks and also indexed for inflation the energy-efficient commercial buildings deduction.
©2022 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation