The IRS has announced its annual inflation adjustments for the 2023 tax year. The adjustments raise the thresholds for federal tax brackets for income taxes for 2023.
That means that because of higher inflation, the Internal Revenue Service will exempt more taxpayers' income from taxes in 2023.
The IRS adjusted thresholds and amounts for such things as tax brackets and the standard deduction by about 7%.
As a result, many taxpayers with the same or even slighter higher income in 2023 vs. 2022 will still be in a lower bracket. They'll be subject to lower tax bills.
But taxpayers may have to be patient to enjoy the savings. "The tax brackets shift by 7%," said tax attorney Adam Brewer of AB Tax Law. "But that savings won't be realized until February of 2024 at the earliest. That won't help with higher prices on groceries, rent and gas in the meantime."
Brewer added, "For most taxpayers, it may be too little, too late to help combat the effects of inflation."
Further, while the inflation adjustments will be big, they may not be big enough. "The indexing is imperfect," said Garrett Watson, senior policy analyst and modeling manager at the Tax Foundation. The inflation rate was actually above 8%, higher than the approximately 7% IRS adjustments. And portions of the tax code are not indexed for inflation at all.
Will you fall into a higher federal tax bracket in 2023? Check our comparative tables (below) to see how you'll fare vs. 2022, no matter what your income level is.
If you are starting to gather paperwork for your 2022 return, of course you need to know what the brackets and rates are for 2022 taxes.
If you are turning your attention to tax planning for 2023, keep this in mind: Tax rates — as opposed to brackets — did not change compared to 2022. The IRS will use the same seven rates.
Tax Brackets: What's New For 2023
The 2023 tax brackets, however, do change.
The top limit for each bracket will rise. That means in 2023 it will take higher income to become subject to each tax bracket.
The fact that you will remain in a lower bracket with higher income is generally good for taxpayers.
The IRS adjusts the brackets to account for inflation.
And during 2022 inflation rose higher than it had been in four decades.
Look at it this way: If your income stays the same in 2023 vs. 2022 and your 2022 income was just enough to reach any one of the six upper brackets, you'll fall into a lower bracket in 2023.
To see where the thresholds are for each bracket in 2023 vs. 2022, compare the tables below.
Federal Tax Brackets For Ordinary Income: 2023 Vs. 2022
Compare 2023 federal tax brackets and tax rates to the 2022 tax brackets and their marginal tax rates. Brackets and rates for both years are shown below.
2022 Federal Tax Brackets With Each Bracket's Marginal Tax Rate, Based On A Taxpayer's Taxable Income
| Tax rate | Single filers | Married joint filers | Heads of households |
|---|---|---|---|
| 10% | $0 - $10,275 | $0 - $20,550 | $0 - $14,650 |
| 12% | $10,276 - $41,775 | $20,551 - $83,550 | $14,651 - $55,900 |
| 22% | $41,776 - $89,075 | $83,551 - $178,150 | $55,901 - $89,050 |
| 24% | $89,076 - $170,050 | $178,151 - $340,100 | $89,051 - $170,050 |
| 32% | $170,051 - $215,950 | $340-101 - $431,900 | $170,051 - $215,950 |
| 35% | $215,951 - $539,900 | $431,901 - $647,850 | $215,951 - $539,900 |
| 37% | $539,901 or more | $647,851 or more | $539,901 or more |
2023 Federal Tax Brackets With Each Bracket's Marginal Tax Rate, Based On A Taxpayer's Taxable Income
| Tax rate | Single filers | Married joint filers | Heads of households |
|---|---|---|---|
| 10% | $0 - $11,000 | $0 - $22,000 | $0 - $15,700 |
| 12% | $11,001 - $44,725 | $22,001 - $89,450 | $15,700 - $59,850 |
| 22% | $44,726 - $95,375 | $89,451 - $190,750 | $59,850 - $95,350 |
| 24% | $95,376 - $182,100 | $190,751 - $364,200 | $95,350 - $182,100 |
| 32% | $182,101 - $231,250 | $364,201 - $462,500 | $182,101 - $231,250 |
| 35% | $231,251 - $578,125 | $462,500 - $693,750 | $231,251 - $578,100 |
| 37% | $578,126 or more | $693,750 or more | $578,100 or more |
Bigger Standard Deduction In 2023
Tax brackets are not the only tax provision changed by the IRS's annual inflation adjustments. The adjustments also mean a larger standard deduction for 2023.
The standard deduction for single taxpayers and married individuals filing separately rises to $13,850 for 2023. That's up $900 from 2022's $12,950 standard deduction.
For married couples filing jointly, for tax year 2023 the standard deduction climbs to $27,700. That's an $1,800 increase from 2022.
For heads of households, the 2022 standard deduction will be $20,800 for tax year 2023, up $1,400.
No Personal Exemption — Again
The personal exemption for tax year 2023 remains $0. That's the same as it was for 2022. Elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) exemption for single filers in tax year 2023 is $81,300. The 2022 exemption amount was $75,900.
The exemption is the amount that a taxpayer is allowed to deduct from their alternative minimum taxable income before calculating the taxpayer's AMT liability. The exemption amount depends on a taxpayer's filing status.
The 2023 exemption is $126,500 for married couples filing jointly. It was $118,100 for married couples filing jointly this year.
Estate Tax Exclusion
Estates of decedents who die during 2023 have a basic exclusion amount of $12.92 million. That's up from $12.06 million for estates of decedents who died in 2022.
The annual exclusion for gifts increases to $17,000 for calendar year 2023. That is an increase from $16,000 for 2022.
The annual gift tax exclusion is the amount you can give to someone else without having to pay a gift tax. Any gift above the exclusion is subject to taxes, unless you qualify for various legal loopholes.
Medical Savings Accounts
Inflation indexing that impacts tax brackets also affects Medical Savings Accounts. Let's say you're a participant in a high-deductible plan who has self-only coverage. For tax year 2023, your plan must have an annual deductible that is not less than $2,650. That's up $200 from tax year 2022.
The deductible cannot be more than $3,950. That's an increase of $250 from tax year 2022.
And for self-only coverage, the maximum out-of-pocket expense amount is $5,300. That's an increase of $350 from 2022.
If you've got family coverage, for tax year 2023 the annual deductible must be at least $5,300. That's up from $4,950 in 2022. The most the deductible can be is $7,900. That's a $500 increase vs. 2022.
For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023, an increase of $600 from tax year 2022.
Itemized Deductions
For 2023, inflation indexing does not affect itemized deductions. As in 2018 through 2022, there is no limitation on itemized deductions. That limitation was eliminated by the Tax Cuts and Jobs Act.
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