These Are the Inflation-Adjusted Tax Brackets and Income Deductions for 2023

On October 18, 2022, the Internal Revenue Service (IRS) announced its tax inflation adjustments for the 2023 tax year. Several key numbers are increasing as a result of U.S. inflation, and this means that taxpayers will need to prepare their tax returns carefully to ensure that they receive the benefits of these increased figures.

While taxpayers still have the upcoming tax season to contend with, individuals and businesses alike should start planning for the 2023 tax year (with tax returns filed in 2024) as well. With this in mind, here are some of the most notable inflation adjustments from the IRS’ recent announcement:

2023 Tax Year Marginal Tax Brackets

For the 2023 tax year, the inflation-adjusted marginal tax brackets for federal income tax are as follows:

• Income over $578,125 ($693,750 for married couples filing jointly): 37 percent
• Income over $231,250 ($462,500 for married couples filing jointly): 35 percent
• Income over $182,100 ($364,200 for married couples filing jointly): 32 percent
• Income over $95,375 ($190,750 for married couples filing jointly): 24 percent
• Income over $44,725 ($89,450 for married couples filing jointly): 22 percent
• Income over $11,000 ($22,000 for married couples filing jointly): 12 percent
• Income of $11,000 or less ($22,000 for married couples filing jointly): 10 percent

2023 Tax Year Inflation-Adjusted Deductions, Credits and Exclusions

The following deductions, credits and exclusion amounts are all increasing for the 2023 tax year:

• Standard Deductions – The standard deductions are rising for single taxpayers and married individuals filing separately ($13,850), heads of household ($20,800), and married couples filing jointly ($27,700).
• Alternative Minimum Tax (AMT) – The Alternative Minimum Tax (AMT) exemption amount is increasing to $81,300 for individuals and $126,500 for married couples filing jointly. Phaseouts begin at $578,150 for individuals and $1,156,300 for married couples.
• Earned Income Tax Credit (EITC) – The Earned Income Tax Credit (EITC) is increasing to $7,430 for qualifying taxpayers with three or more qualifying children.
• Qualified Transportation and Parking – The monthly limitation for qualified transportation and parking benefits is increasing to $300 (up from $280 in 2022).
• Foreign Earned Income Exclusion – The foreign earned income tax exclusion is increasing to $120,000 (up from $112,000 in 2022).
• Estate Tax Exclusion – The estate tax exclusion is increasing to $12,920,000 (up from $12,060,000 for decedents who died in 2022).
• Annual Gift Tax Exclusion – The annual gift tax exclusion is increasing to $17,000 (for the 2023 calendar year), an increase from $16,000 in 2022.
• Adoption Credit – The maximum allowable credit for qualified adoption expenses is increasing to $15,950 (up from $14,890 in 2022).

As identified by the IRS, deductions, credits and exclusions that are not changing for the 2023 tax year include (but are not limited to):

• Personal Exemption (remains at zero)
• Limitation on itemized deductions (no limit)
• Lifetime Learning Credit (modified adjusted gross income amount remains at $80,000 for individuals and $160,000 for joint filers)

Contact Kevin E. Thorn, Managing Partner of Thorn Law Group in Virginia

If you have questions about your federal income tax obligations as a Virginia resident, we can help. To request a confidential consultation with tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 703-752-3752, email ket@thornlawgroup.com or inquire online today.