IRS Provides Tax Inflation Adjustments for Tax Year 2023

The Internal Revenue Service recently announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. These adjustments generally apply to tax returns filed in 2024.

Here are some of the highlights:

Standard deductions

The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year.

For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.

Marginal rates

For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).

The complete rates are:

Tax Rate	Individual Single Taxpayer Income	Married Couples Filing Jointly Income
37%	Over $578,125	Over $693,750
35%	Over $231,250	Over $462,500
32%	Over 182,100	Over $364,200
24%	Over $95,375	Over $190,750
22%	Over $44,725	Over $89,450
12%	Over $11,000	Over $22,000
10%	Less than $11,000	Less than $22,000

 

Alternative minimum tax

The Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300). The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).

Adoption credit

The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950, up from $14,890 for 2022.

Employee benefits

For tax year 2023, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up $20 from the limit for 2022.

For the taxable years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements (FSAs) increases to $3,050. For plans that permit the carryover of unused amounts, the maximum carryover amount is $610, an increase of $40 from taxable years beginning in 2022.

Items unaffected by indexing

By statute, certain items that were indexed for inflation in the past are currently not adjusted.

• The personal exemption for tax year 2023 remains at 0, as it was for 2022. This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
• For 2023, as in the past five years, there is no limitation on itemized deductions. That limitation was eliminated by the Tax Cuts and Jobs Act.
• The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is not adjusted for inflation for taxable years beginning after December 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

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