With inflation continuing to pose a financial challenge American taxpayers will soon be getting some relief from the Internal Revenue Service (IRS). Annual inflation adjustments made by the IRS went into effect in 1985. For the 2023 tax year the IRS is increasing the standard deduction and adjusting the income limits for tax brackets.
The standard deduction for married couples filing jointly in 2023 will be $27,700, up $1,800 from the prior year. For single taxpayers, the standard deduction rises to $13,850, which is up $900.
While tax rates remain the same in 2023, the income limits for each tax rate will be different. That means that even if you earn the same amount of income in 2023, your top tax rate may go down. For example, if you earned $100,000 in 2022 your top tax rate was 32%; but next year that would fall to 24%. Other tax bracket adjustments are:
- 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
- 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)
- 10% for incomes of single individuals with $11,000 or less in income ($22,000 for married couples filing jointly)
Other changes and adjustments for 2023 include:
- The Alternative Minimum Tax exemption amount 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).
- Foreign earned income exclusion is $120,000, up from $112,000 for tax year 2022.
- Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.
- The annual exclusion for gifts increases to $17,000, up from $16,000 for calendar year 2022.
These adjustments apply to taxes in the 2023 tax year. For additional information or assistance with any tax issue, please contact Gray, Gray & Gray at (781) 407-0300.