2023 Inflation Adjustments
The IRS’s 2023 inflation adjustments for more than 60 tax provisions are out. These will affect tax rate schedules and other tax channels this year and going forward.
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What’s New in 2023
The Inflation Reduction Act delivered some energy-related tax breaks. Energy-efficient commercial buildings are also indexed for inflation.
According to the official announcement, the applicable dollar value that determines the maximum allowance of the deduction is $0.54 more, but no more than $1.07 “by $0.02 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 dollar value that determines the increased deduction amount for qualifying property is $2.68 more, but no more than $5.36, “by $0.11 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 percent.”
All of these changes are applicable to the 2023 tax year.
How Revenue Procedure will change between 2022 and 2038
The changes that are implemented this year will apply to all tax returns filed in 2024, and will be of most interest to the following:
- Married couples. The standard deduction for married couples filing jointly will increase from $1,800 to $27,700.
- Single or MFS. The standard deduction for taxpayers who are single or married and filing separately will increase to $27,700, an increase of $900 from the previous year.
- Head of household. The standard deduction for heads of households will increase to $20,800, an increase of $1,400.
- Single taxpayers >$578,125 annually. The top tax rate will remain at 37%.
- Married couples filing jointly. The top tax rate applies to those who make $693,750 or more annually.
Other rates to note
All except married and filing jointly
- 35% for incomes over $231,250
- 32% for incomes over $182,100
- 24% for incomes over $95,375
- 22% for incomes over $44,725
- 12% for incomes over $11,000
- 10% (the lowest rate) for incomes of $11,000 or less
Married and filing jointly
- 35% for incomes over $462,500
- 32% for incomes over $364,200
- 24% for incomes over $190,750
- 22% for incomes over $89,450
- 12% for incomes over $22,000
- 10% (the lowest rate) for incomes of $22,000 or less
2022 | 2023 | |
Alternative minimum tax exemption for all except married couples filing jointly | $75,900 phasing out at $539,900 | $81,300 phasing out at $578,150 |
Alternative minimum tax exemption for married couples filing jointly | $118,100 phasing out at $1,079,800 | $126,500 phasing out at $1,156,300 |
Maximum Earned Income Tax Credit *for taxpayers with three or more qualifying children | $6,935 | $7,430 |
Qualified transportation fringe benefit and qualified parking *monthly limitation | $280 | $300 |
Health flexible spending arrangement contribution limitation *employee contributions | $2,850, max unused carryover $570 | $3,050, max unused carryover $610 |
Medical savings account: Self-only coverage | Annual deductible $2,450, not exceeding $3,700; out-of-pocket $4,950 | Annual deductible $2,650, not exceeding $3,950; out-of-pocket $5,300 |
Medical savings account: Family coverage | Annual deductible $4,950, not exceeding $7,400, out-of-pocket $9,050 | Annual deductible $5,300, not exceeding $7,900, out-of-pocket $9,650 |
Foreign-earned income exclusion | $112,000 | $120,000 |
Estate transfer exclusion | $12,060,000 | $12,920,000 |
Annual gift exclusion | $16,000 | $17,000 |
Adoption credit maximum *qualified adoption expenses | $14,890 | $15,950 |
What won’t change
Some items that were indexed for inflation in the past are not adjusted at this time.
- The personal exemption for 2023 will remain at 0 (the Tax Cuts and Jobs Act eliminated the personal exemption).
- No limitation on itemized deductions in 2023. This has been the case since 2018 (another provision of the Tax Cuts and Jobs Acts).
- The modified adjusted gross income amount that joint filers use to determine their reduction in the Lifetime Learning Credit will not be adjusted for inflation. This began on December 31, 2020. If you’re single or married and filing separately, the Lifetime Learning Credit is phased out for taxpayers who have a modified adjusted gross income of more than $80,000. If you’re filing jointly, this amount is $160,000.
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