IRS Increases Standard Deduction to Account for Stubborn Inflation

The Internal Revenue Service announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions, including tax rate schedules and other tax changes.

Revenue Procedure 2022-38 provides details about these annual adjustments.

Highlights: Revenue Procedure 2022-38

(Note: The adjustments described below generally apply to tax returns filed in 2024.)

  • The standard deduction for married couples filing jointly for the 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 increases to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for the tax year 2023, up $1,400 from the amount for the tax year 2022.
  • Marginal Rates: For the tax year 2023, the top tax rate remains 37 percent for individual single taxpayers with incomes higher than $578,125 ($693,750 for married couples filing jointly).

    The other rates are:

    • 35 percent for incomes over $231,250 ($462,500 for married couples filing jointly)
    • 32 percent for incomes over $182,100 ($364,200 for married couples filing jointly)
    • 24 percent for incomes over $95,375 ($190,750 for married couples filing jointly)
    • 22 percent for incomes over $44,725 ($89,450 for married couples filing jointly)
    • 12 percent for incomes over $11,000 ($22,000 for married couples filing jointly)

The lowest rate is 10 percent for single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).

  • The Alternative Minimum Tax exemption amount for the 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 started to phase out at $1,079,800).
  • The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers with three or more children, up from $6,935 for the tax year 2022. The revenue procedure contains a table providing the maximum EITC amount for other categories, income thresholds, and phase-outs.
  • For the 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 increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, an increase of $40 from taxable years beginning in 2022.
  • For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 for tax year 2022.
  • Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.
  • The annual exclusion for gifts increases to $17,000 for the calendar year 2023, up from $16,000 for the calendar year 2022.
  • The maximum credit allowed for adoptions for the tax year 2023 is the amount of qualified adoption expenses up to $15,950, up from $14,890 for 2022.

Items Unaffected By Indexing

Certain past items previously indexed for inflation are currently not adjusted by statute.

  • The personal exemption for the tax year 2023 remains at 0, as it was for 2022. This personal exemption elimination was a provision in the Tax Cuts and Jobs Act.
  • There is no limitation on itemized deductions for 2023, as in 2022, 2021, 2020, 2019, and 2018, as the Tax Cuts and Jobs Act eliminated that limitation.
  • The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020. The Lifetime Learning Credit phases out for taxpayers with a modified adjusted gross income of more than $80,000 ($160,000 for joint returns).

Visit the IRS website for more information.

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