This fall, the IRS announced inflation adjustments for tax year 2023, including tax rate schedules, the standard deduction, and more than 60 other provisions. While this list is not exhaustive, we wanted to highlight the changes that will most affect our clients.
Standard Deduction
The standard deduction amounts for 2023 are:
- $27,700 for married couples filing jointly (up $1,800 from 2022)
- $13,850 (up $900) for single taxpayers and married individuals filing separately
- $20,800 (up $1,400) for heads of household
Marginal Rates
For 2023, the top tax rate of 37% applies to individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly). The 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).
Income Rate Brackets
For 2023, the top tax rate of 37% applies to individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
The other tax brackets 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)
- 10% for incomes of $11,000 or less ($22,000 for married couples filing jointly)
Alternative Minimum Tax
The AMT exemption amount for tax year 2023 is $81,300 (up from $75,900) and begins to phase out at $578,150 ($539,900). The AMT exemption for joint filers is $126,500 and their exemption begins to phase out at $1,156,300 (up from $1,079,800).
Retirement Accounts
The employee contribution limit for 401(k) and similar workplace plans will jump $2,000 to $22,500 for 2023. The amount taxpayers can contribute to an individual retirement account will be $6,500 for 2023, up from $6,000. The limit hasn’t changed since 2019.
The 401(k) catch-up contribution amount allowed if you are 50 or older will rise $1,000 to $7,500 for 2023. The catch-up contribution limit for individual retirement accounts, which isn’t subject to inflation adjustments, remains at $1,000.
For workers at companies that allow special after-tax contributions, and self-employed people who have individual 401(k)s or SEP retirement plans, there is a total $66,000 plan contribution limit for 2023, up $5,000 from this year. That includes employee and employer contributions. With catch-up contributions on top, older savers can contribute up to $73,500 in 2023 to these plans.
Health Flexible Savings Accounts
For the tax years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health FSAs 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 2022.
Medical Savings Accounts
For tax year 2023, an HSA participant with self-only coverage must have a high-deductible health plan with an annual deductible of at least $2,650, but not more than $3,950. The maximum out-of-pocket expense amount is $5,300 (up from $4,950 in 2022). For family coverage, the HDHP 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 limit is $9,650 (a $600 increase over 2022)
Foreign Earned Income Exclusion
For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 in 2022.
Lifetime Estate and Gift Tax Exemption
Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000 (up from $12,060,000 in 2022).
Annual Gift Tax Exclusion
The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for 2022.