IRS Tax Inflation Adjustments for 2023
The Internal Revenue Services (IRS) has announced annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes for the tax year 2023. Revenue Procedure 2022-38 provides details on these annual adjustments. Below we have outlined the key tax provisions that will affect individuals.
2023 Income Rate Brackets
| Tax Rate | Single Filers | Joint Filers | Head of Household Filers |
|---|---|---|---|
| 10% | $11,000 and Under | $22,000 and Under | $15,700 and Under |
| 12% | Over $11,000 | Over $22,000 | Over $15,700 |
| 22% | Over $44,725 | Over $89,450 | Over $59,850 |
| 24% | Over $95,375 | Over $190,750 | Over $95,350 |
| 32% | Over 182,100 | Over $364,200 | Over $182,100 |
| 35% | Over 231,250 | Over $462,500 | Over $231,250 |
| 37% | Over $578,125 | Over 693,750 | Over $578,10 |
Standard Deduction
| Single Filers | $13,850 (an increase of $900) |
| Head of Household Filers | $20,800 (an increase of $1,400) |
| Married Couples Filing Jointly | $27,700 (an increase of $1,800 |
Alternative Minimum Tax (AMT) Rate Changes
| Filing Status | Exemption Amount | Threshold Phaseout Amount | Complete Phaseout Amount |
|---|---|---|---|
| Joint Returns or Surviving Spouses | $126,500 | $1,156,300 | $1,662,300 |
| Unmarried Individuals (other than Surviving Spouses) | $81,300 | $578,150 | $903,350 |
| Married Individuals Filing Separate Returns | $63,250 | $578,150 | $831,150 |
| Estates and Trusts | $28,400 | $94,600 | $208,20 |
Earned Income Tax Credit (EITC) Changes
| Item | None | One | Two | Three or More |
|---|---|---|---|---|
| Earned Income Amount | $7,840 | $11,750 | $16,510 | $16,510 |
| Max Amount of Credit (Single, Surviving Spouse, or Head of Household) | $600 | $3,995 | $6,604 | $7,430 |
| Threshold Phaseout Amount (Single, Surviving Spouse, or Head of Household) | $9,800 | $21,560 | $21,560 | $21,650 |
| Completed Phaseout Amount (Single, Surviving Spouse, or Head of Household) | $17,640 | $46,560 | $52,918 | $56,838 |
| Threshold Phaseout Amount (Married Filing Jointly) | $16,370 | $28,120 | $28,120 | $28,120 |
| Completed Phaseout Amount (Married Filing Jointly) | $24,210 | $53,120 | $59,478 | $63,39 |
Maximum Capital Gains Tax Rates
| Filing Status | Max Zero Rate Amount | Max 15% Rate Amount |
|---|---|---|
| Married Individuals Filing Joint Returns and Surviving Spouse | $89,250 | $553,850 |
| Married Individuals Filing Separate Returns | $44,625 | $276,900 |
| Heads of Household | $59,750 | $523,050 |
| All Other Individuals | $44,625 | $492,300 |
| Estates and Trusts | $3,000 | $14,65 |
Adoption Credit: For taxable years beginning in 2023, the amount of qualified adoptions expenses is up to $15,950, which is a $1,060 increase from 2022.
Cafeteria Plans: The dollar limitation on voluntary employee salary reductions for contributions to health flexible spending arrangements is $3,050. The maximum carryover is $610 if the cafeteria plan permits carryover of unused amounts.
Unified Estate Tax: The basic exclusion amount for decedents who die in 2023 is $12,920,000 (up from $12,060,00 in 2022).
Foreign Earned Income Exclusion: The exclusion amount is $120,000 (up from $112,000 in 2022).
Medical Savings Account: For self-only coverage, the plan must be a high deductible with an annual deductible of at least $2,650 (a $200 increase) and not more than $3,950 (a $250 increase from the previous year). The maximum out-of-pocket expense is $5,300 (up from $4,950 in 2022). For family coverage, the high deductible must have an annual deductible of not less than $5,300 and no more than $7,900 (up $500 from 2022). The out-of-pocket expense is $9,650 (a $600 increase over 2022).
Qualified Transportation Fringe Benefit: The monthly limitation for the qualified transportation fringe benefit for the 2023 tax year has increased to $300, which is a $20 increase from the limit for 2022.
Gift Exclusion: The annual exclusion for gifts for 2023 increases to $17,000, which is a $1,000 increase from last year.
Items not affected by indexing: Items that were indexed for inflation in the past are currently not adjusted. This includes:
- The personal exemption for the 2023 tax year remains at 0.
- For 2023, there is no limitation in itemized deductions as that limitation was eliminated by the Tax Cuts and Jobs Act.
- The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020.
If you have any questions on the IRS tax inflation adjustments for 2023, please contact your Brown Plus advisor.