The Internal Revenue Service has released a large number of inflation adjustments for individual income tax brackets, deductions, and credits for 2023. It’s not a surprise that today’s high inflation has led to some big increases, as it has for the past four decades.
Think about the standard deduction, which is what more than 85% of taxpayers now use instead of itemized deductions. This deduction will go up from $25,900 in 2022 to $27,700 in 2023 for a married couple filing a joint tax return.
It will go up from $12,950 to $13,850 for single people and couples filing separately, and it will go up from $19,400 to $20,800 for a head of household. (A single adult with children or other people who depend on them is the head of the household.) The extra standard deduction for people 65 or older will go up from $1,400 to $1,500 per person in 2022. If the person is single, the extra deduction will go up from $1,750 to $1,850 in 2023.
Also, in 2023, both ordinary income tax brackets and capital gains tax brackets for individuals will go up by 7%. So, for a married couple filing jointly, the lowest 10% ordinary income tax bracket will cover the first $22,000 of taxable income, up from $20,550 in 2022. In 2022, the couple’s 24% tax bracket will start at $190,750, up from $178,150, and the highest rate of 37% will apply to taxable income over $693,750, up from $647,850.
⚡ 2022 Tax Brackets: https://t.co/pPudrxLSoq pic.twitter.com/fQAGa4odlW
— Tax Foundation (@TaxFoundation) November 10, 2021
At the end of this post, you can find a list of all the income tax brackets for ordinary income in 2023. Ordinary income includes salaries, income from self-employment, and interest. Remember that these rates for 2022 will be used when you file your 1040 in early 2023.
Individual Federal Tax Brackets
Individual federal tax brackets have been automatically adjusted for inflation since 1985. This was made possible by a law that was passed in 1981 when inflation was even higher than it is now. The goal of the changes is to make sure that inflation doesn’t push people into higher tax brackets by accident.
People whose incomes haven’t kept up with inflation might pay less in taxes in 2023 than they did in 2022. In other words, they might get a tax cut that helps them make up for some of what they’ve lost. Rich people can also get a tax cut in 2023 by putting more money into their retirement accounts before taxes are taken out. Younger workers will be able to put up to $22,500 before taxes into their 401(k), while those 50 and older will be able to put up to $30,000. All the details are here.]
The top marginal income tax rate of 37 percent will kick in above $539,900 for single filers (up from $523,600) and above $647,850 for married couples filing jointly (up from $628,300). pic.twitter.com/p1oDquR5eG
— Tax Foundation (@TaxFoundation) November 10, 2021
One important thing that isn’t indexed, though, is the level of income at which taxes start to be taken out of Social Security benefits. This means that more retirees with moderate incomes will have to pay federal taxes on their 2023 benefits, which will be higher because of an 8.7% increase in the cost of living.
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As for the tax rate on qualified stock dividends and long-term capital gains (gains on stocks held for more than a year), a married couple won’t owe any tax until their income (including these gains) is over $89,250. This is up from $83,350 in 2022. 15% of the gains come after that. Above $553,850 for a couple in 2023, the top gains rate of 20% will begin, up from $517,200 in 2022.
The 15% rate for capital gains and dividends kicks in for single filers with income over $44,625 in 2023, up from $41,676 in 2022. But the top 20% rate won’t apply to single people until they make more than $492,300 (up from $459,760) in 2023. (Yes, that’s more than half of what married couples have to pay. One part of the tax code that still has a marriage penalty is the top gains rate. (No, you can’t get around this one by filing your taxes separately from your spouse.)
The standard deduction will increase by $800 for joint filers, $600 for head of household filers, and $400 for single filers. pic.twitter.com/ooGP5743Dv
— Tax Foundation (@TaxFoundation) November 10, 2021
Several important credits are also changed to keep up with inflation. For example, the maximum earned income tax credit for qualifying taxpayers with three or more children will go up from $6,935 in 2022 to $7,430 in 2023. The credit is meant to help low-income working families, and it goes up as income goes up.
At fairly low levels of income, it starts to go down slowly. So, a married couple with three children will start to lose their EITC when their income reaches $28,120 in 2023, but they won’t lose it all until their income reaches $63,398.
Here, you can find a list of all the changes in IRS Revenue Procedure 22-38. (It’s a 28-page document that talks about everything from the adoption credit to late filing penalties.)
Inflation also means that wealthy people will be able to give their heirs a lot more money without paying taxes on it while they are still alive or after they die. One important change is that you can give $17,000 in gifts to anyone you want in 2023, up from $16,000 in 2022, without using up your lifetime gift and estate tax exemption or having to pay gift tax.
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This lifetime exemption will go up from $12,060,00 in 2022 to $12,920,00 in 2023. (You can find out more about the changes to the estate and gift tax here.)
In 2023, these are the new tax brackets for regular income:
Tax Rates for Married People Filing Joint Returns and Survivors (Joint) in 2023
| If Taxable Income Is | The Tax Due Is | ||
|---|---|---|---|
| 0 – $22,000 | 10% of taxable income | ||
| $22,000 – $89,450 | $2,200 + 12% of the amount over $22,000 | ||
| $89,450 – $190,750 | $10,294 + 22% of the amount over $89,450 | ||
| $190,750 – $364,200 | $32,580 + 24% of the amount over $190,750 | ||
| $364,200 – $462,500 | $74,208 + 32% of the amount over $364,200 | ||
| $462,500 – $693,750 | $105,664 + 35% of the amount over $462,500 | ||
| over $693,750 | $186,601.50 + 37% of the amount over $693,750 |
Tax Rates for Single Taxpayers in 2023
| If Taxable Income Is | The Tax Due Is | ||
|---|---|---|---|
| 0 – $11,000 | 10% of taxable income | ||
| $11,000 – $44,725 | $1,100 + 12% of the amount over $11,000 | ||
| $44,725 – $95,375 | $5,147 + 22% of the amount over $44,725 | ||
| $95,375 – $182,100 | $16,290 + 24% of the amount over $95,375 | ||
| $182,100 – $231,250 | $37,104 + 32% of the amount over $182,100 | ||
| $231,250 – $578,125 | $52,832 + 35% of the amount over $231,250 | ||
| over $578,125 | $174,238.25 + 37% of the amount over $578,125 |
Tax Rates for Married People Filing Separately in 2023
| If Taxable Income Is | The Tax Due Is | ||
|---|---|---|---|
| 0 – $11,000 | 10% of taxable income | ||
| $11,000 – $44,725 | $1,100 + 12% of the amount over $11,000 | ||
| $44,725 – $95,375 | $5,147 + 22% of the amount over $44,725 | ||
| $95,375 – $182,100 | $16,290 + 24% of the amount over $95,375 | ||
| $182,100 – $231,250 | $37,104 + 32% of the amount over $182,100 | ||
| $231,250 – $346,875 | $52,832 + 35% of the amount over $231,250 | ||
| over $346,875 | $93,300.75 + 37% of the amount over $346,875 |
Trusts & Estates Tax Rates 2023
| If Taxable Income Is | The Tax Due Is | ||
|---|---|---|---|
| 0 – $2,900 | 10% of taxable income | ||
| $2,900 – $10,550 | $290 + 24% of the amount over $2,900 | ||
| $10,550 – $14,450 | $2,126 + 35% of the amount over $10,550 | ||
| over $14,450 | $3,491 + 37% of the amount over $14,450 |
