Top Inflation Changes for Tax Year 2023
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While there is no escaping inflation, the IRS adjusts certain tax numbers every year to account for reduced purchasing power. There were some significant inflation changes for 2023, so let’s take a look at them.
At a glance:
- The standard deduction has increased, as have contribution limits for retirement accounts.
- The IRS updated federal income tax brackets and capital gain tax brackets.
- Some tax credits also saw changes, including the EITC and Adoption Credit.
What are the IRS inflation adjustments for 2023 taxes?
The IRS made several inflation adjustments for tax year 2023. We go over some of the most important changes below.
What is the standard deduction for 2023?
The IRS adjusts the standard deduction for inflation every year. The amount you can claim depends on your filing status. Here are the current amounts for 2023 compared to last year:
|Tax filing status||Standard deduction 2023||Standard deduction 2022|
|Head of Household||$20,800||$19,400|
|Married filing jointly and surviving spouse||$27,700||$25,900|
|Married filing separately||$13,850||$12,950|
If you are blind or age 65 and up, you can claim an additional standard deduction:
|Age and filing status||2023 additional standard deduction||2022 additional standard deduction|
|65+ OR blind (single and head of household)||$1,850||$1,750|
|65+ AND blind (single and head of household)||$3,700||$3,500|
|65+ OR blind (married filing jointly or separately)||$1,500 (per qualifying individual)||$1,400 (per qualifying individual)|
|65+ AND blind (married filing jointly or separately)||$3,000 (per qualifying individual)||$2,800 (per qualifying individual)|
If you can be claimed as a dependent in 2023, your standard deduction limit is $1,250, or your earned income plus $400 — whichever is greater.
Has the federal tax rate changed for 2023?
The top marginal tax rate for 2023 remains at 37% for individual single taxpayers with incomes above $578,125 ($693,750 for married couples filing jointly).
Here are the other tax rates for this year:
- 35% for incomes over $231,250 ($462,500 for joint filers)
- 32% for incomes over $182,100 ($364,200 for joint filers)
- 24% for incomes over $95,375 ($190,750 for joint filers)
- 22% for incomes over $44,725 ($89,450 for joint filers)
- 12% for incomes over $11,000 ($22,000 for joint filers)
What are the 2023 tax brackets?
The tax brackets for 2023 are as follows:
|Tax rate||Single filer||Joint filers||Married filing separately||Head of household|
|10%||$0 to $11,000||$0 to $22,000||$0 to $11,000||$0 to $15,700|
|12%||$11,001 to $44,725||$22,001 to $89,450||$11,001 to $44,725||$15,701 to $59,850|
|22%||$44,726 to $95,375||$89,451 to $190,750||$44,726 to $95,375||$59,851 to $95,350|
|24%||$95,376 to $182,100||$190,751 to $364,200||$95,376 to $182,100||$95,351 to $182,100|
|32%||$182,101 to $231,250||$364,201 to $462,500||$182,101 to $231,250||$182,101 to $231,250|
|35%||$231,251 to $578,125||$462,501 to $693,750||$231,251 to $346,875||$231,251 to $578,100|
|37%||$578,126 or more||$693,751 or more||$346,876 or more||$578,101 or more|
What are the capital gain tax rates for 2023?
If you sold assets and investments in 2023, your profits are subject to capital gains tax rates. This applies to everything from stocks and bonds to real estate and crypto.
Short-term gains are taxed like your ordinary income (refer to the tax bracket table above). These rates apply to any assets you sell after holding for less than one year.
Long-term gain rates apply to any assets you hold for over one year before selling, maxing out at 20%. The long-term rates for 2023 are:
|Tax rate||Single||Married filing jointly||Married filing separately||Head of household|
|0%||$0 to $44,625||$0 to $89,250||$0 to $44,625||$0 to $59,750|
|15%||$44,626 to $492,300||$89,251 to $553,850||$44,626 to $276,900||$59,751 to $523,050|
|20%||$492,301 or more.||$553,851 or more||$276,901 or more||$523,051 or more|
What are the Earned Income Tax Credit amounts for 2023?
The Earned Income Tax Credit (EITC) is available for low- to middle-income working taxpayers. The amount you can claim is determined by your income, filing status, and the amount of children you have.
For 2023, the maximum EITC you can claim is $7,430. Here are the income limits for claiming the credit this tax year:
|Number of Children Living with You||Maximum Adjusted Gross Income and Earned Income|
|0||$17,640 ($24,210 married filing jointly)|
|1||$46,560 ($53,120 married filing jointly)|
|2||$52,918 ($59,478 married filing jointly)|
|3 or more||$56,838 ($63,698 married filing jointly)|
What contribution amounts changed for 2023?
- 401(k) contributions: As an individual, you can contribute up to $22,500 to your 401(k) in 2023. This is up from $20,500 in 2022. If you are 50 or older, you can contribute up to $30,000 ($29,000 in 2022).
- IRA contributions: The annual contribution limit for IRAs in 2023 is $6,500, up from $6,000 in 2022. If you are 50 or older, you can contribute up to $7,500. If you have a SIMPLE IRA, you can contribute up to $15,500 in 2023, (up from $14,000 in 2022). There were also some changes to income phase-out ranges for determining eligibility to deduct IRA contributions, which the IRS discusses in detail in their official announcement.
- Health flexible spending accounts: In 2023, you can contribute up to $3,050 in employee salary reductions to fund your health flexible spending arrangement.
- Medical Savings Accounts: Deductible ranges and out-of-pocket expenses for Medical Savings Accounts also increased. For individuals with self-only coverage, the plan must have an annual deductible of at least $2,650, at most $3,950, and an out-of-pocket expense limit of $5,300. For families, the annual deductible must be at least $5,300 but no more than $7,900, with an out-of-pocket expense limit of $9,650.
What else is changing for 2023?
- Social Security tax limit: There is a limit on how much of your income is subject to Social Security tax. For 2023, the maximum earnings subject to the Social Security payroll tax increased to $160,200 (up from $147,000 in 2022). This means the maximum Social Security tax you can have withheld from your paycheck in 2023 will be $9,932.
- Fringe benefits: The monthly limit for tax-free qualified transportation and parking fringe benefits increased to $300 (up from $280 in 2022).
- Gift tax exclusions: The annual gift tax exclusion increased to $17,000 for 2023 (up from $16,000 in 2022). You can gift someone up to this amount without filing a gift tax return. The lifetime exclusion also increased to $12.92 million.
- Qualified adoption expenses: The maximum credit for adoption expenses increased to $15,950 (up from $14,890 in 2022).
- Foreign earned income exclusion: For 2023, the foreign earned income exclusion is $120,000 (up from $112,000 in 2022). If you qualify, you can exclude foreign earnings from your income up to this amount.
What has NOT changed for 2023?
- The reporting threshold for Form 1099-K is still $20,000 in gross payments with at least 200 transactions.
- There continues to be no limit on itemized deductions.
- The personal exemption remains at 0.
- The modified adjusted gross income (MAGI) amount used by joint filers to determine the Lifetime Learning Credit (LLC) reduction was not adjusted for inflation. The LLC begins phasing out once your MAGI exceeds $80,000 ($160,000 for joint filers).