IRS Announces Tax Inflation Adjustments for 2023

The Internal Revenue Service (IRS) recently announced the tax inflation adjustments for the 2023 tax year. As the IRS clarifies, “[t]he tax year 2023 adjustments . . . generally apply to tax returns filed in 2024.” With the 2023 tax year fast approaching, taxpayers should take these adjustments into account when doing their tax planning this season.

Here are some of the highlights from the IRS’ October 18, 2022 announcement:

Marginal Tax Brackets for the 2023 Tax Year

Of interest to all taxpayers will be the updated marginal tax brackets for the 2023 tax year. As outlined by the IRS, the updated tax brackets (and associated income tax rates) are as follows:

• 37 percent for incomes over $578,125 ($693,750 for married couples filing jointly)
• 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)
• 10 percent for incomes of $11,000 or less ($22,000 for married couples filing jointly)

Standard Deductions for the 2023 Tax Year

All three standard deductions are increasing for the 2023 tax year due to inflation. For the 2023 tax year, the standard deductions are:

• $13,850 for single taxpayers and married individuals filing separately
• $20,800 for heads of households
• $27,700 for married couples filing jointly

Alternative Minimum Tax (AMT) Exemption and Earned Income Tax Credit (EITC) for the 2023 Tax Year

The Alternative Minimum Tax (AMT) exemption and the Earned Income Tax Credit (EITC) are also increasing for the 2023 tax year. When taxpayers file their federal returns in 2024, the base AMT exemption amount will be $81,200 ($126,500 for married couples filing jointly), and the EITC amount will be $7,430 for qualifying taxpayers who have three or more qualifying children.

Other Notable Inflation Adjustments for the 2023 Tax Year

Along with the marginal tax brackets, standard deductions, AMT exemption and EITC, the IRS' inflation adjustments impact several other credits, exclusions and deductions as well. Some of the most notable examples include:

• Foreign Earned Income Exclusion – The foreign earned income exclusion is increasing to $120,000 (up from $112,000) for the 2023 tax year.
• Estate Tax Exclusion – The estate tax exclusion is increasing to $12,920,000 (up from $12,060,000) for 2023. This increase applies to estates of decedents who die during 2023.
• Annual Gift Tax Exclusion – The annual gift tax exclusion is increasing to $17,000 (up from $16,000) for 2023. This increase applies to gifts made during the 2023 calendar year, not necessarily the tax year.

Contact Thorn Law Group in Boston, MA

Thorn Law Group provides legal representation for individuals and businesses in Boston regarding all IRS-related tax matters. If you have questions or concerns about your (or your business’s) federal tax obligations, we invite you to call 617-692-2989, email ket@thornlawgroup.com or contact us online to schedule a confidential consultation.