On October 18, 2022, the Internal Revenue Service (IRS) announced the annual inflation adjustments for 2023 related to more than 60 tax provisions, with some increasing, some maintaining and some new additions to the list. The tax adjustments generally apply to tax returns for the 2023 tax year that will be filed in 2024 (i.e., the adjustment will not apply to tax returns filed next year for the 2022 tax year). The highlights are summarized below, but you can find the complete list detailed in Revenue Procedure 2022-38.
2023 Marginal Income Tax Brackets
| Tax Rate | Single Taxpayers, Income Greater Than: |
Married Couples Filing Jointly, Income Greater Than: |
|---|---|---|
| 37% | $578,125 | $693,750 |
| 35% | $231,250 | $462,500 |
| 32% | $182,100 | $364,200 |
| 24% | $95,375 | $190,750 |
| 22% | $44,725 | $89,450 |
| 12% | $11,000 | $22,000 |
| 10% | $11,000 or less | $22,000 or less |
2023 Standard Deduction
| Married couples filing jointly | $27,700 (increase of $1,800) |
| Single taxpayers and married individuals filing separately | $13,850 (increase of $900) |
| Heads of households | $20,800 (increase of $1,400) |
Alternative Minimum Tax Exemption
- Unmarried individuals: $81,300
- Joint returns or surviving spouses: $126,500
- Married individuals filing separately: $63,250
- Estates and Trusts: $28,400
Earned Income Tax Credit
- $3,995 for one qualifying child
- $6,604 for two qualifying children
- $7,430 for three or more qualifying children
Qualified Transportation Fringe Benefit
- $300
Foreign Earned Income Exclusion
- $120,000
Basic Exclusion Amount for Estates of Decedents
- $12,920,000
Annual Exclusion for Gifts
- $17,000
New for 2023: Energy-Efficient Commercial Building Deduction
- The applicable dollar value used to determine the maximum allowance of the deduction is $0.54 (increased by $0.02), but not above $1.07, for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25%.
- The applicable dollar value used to determine the increased deduction amount for certain property is $2.68 (increased by $0.11), but not above $5.36, for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage greater than 25%.
Items Not Changing
- Personal exemption for the 2023 tax year remains at zero
- No limit on itemized deductions (same as 2022, 2021, 2020, 2019 and 2018)
Practice Point: The above adjustments are a welcome development for taxpayers in the wake of inflation. However, it is important to note that any tax relief will not be immediate as the adjustments are for the 2023 tax year and will be reflected on tax returns filed in 2024.
