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What to expect from 2023 tax inflation adjustments

Posted on November 2, 2022

With so much national attention on inflation, here’s what you should know about annual inflation adjustments (which generally apply to tax returns filed in 2024):

  • The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year.
    • For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.
  • Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).

Other rates are:

  • 35% for incomes over $231,250 ($462,500 for married couples filing jointly)
  • 32% for incomes over $182,100 ($364,200 for married couples filing jointly)
  • 24% for incomes over $95,375 ($190,750 for married couples filing jointly)
  • 22% for incomes over $44,725 ($89,450 for married couples filing jointly)
  • 12% for incomes over $11,000 ($22,000 for married couples filing jointly)
  • The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
  • The Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300).
    • The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).
  • Maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022.
  • Monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up $20 from the limit for 2022.
  • The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. (For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, an increase of $40 from taxable years beginning in 2022).
  • Participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650, up $200 from tax year 2022; but not more than $3,950, an increase of $250 from tax year 2022.
    • For self-only coverage, the maximum out-of-pocket expense amount is $5,300, up $350 from 2022.
    • For family coverage, the annual deductible is not less than $5,300, up from $4,950 for 2022.
  • The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2021.
  • The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950, up from $14,890 for 2022

Items unaffected by indexing:
Certain items that were indexed for inflation in the past are currently not adjusted, including:

  • The personal exemption for tax year 2023 remains at 0 (no change from 2022).
  • For 2023, as in 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions.
  • The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is not adjusted for inflation for taxable years beginning after December 31, 2020.
  • The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

To learn how any of these or other 2023 IRS changes may affect you, please don’t hesitate to contact us.