The Internal Revenue Service announced inflation adjustments for 2023. These adjustments are for 60 tax provisions, including the tax rate schedules.
Tax rates are typically adjusted for inflation, meaning the thresholds between tax brackets are raised, so the bracket that a person or family is in is based on the buying power of their money and not just the total. The size of the adjustment is notable since prices for items such as food, energy, and other daily staples rose faster than they had in 40 years. The inflation adjustment for 2023 is 7%.
The items that would be of most interest to people include:
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% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
The other rates are:
35% for incomes over $231,250 ($462,500 for married couples filing jointly);
32% for incomes over $182,100 ($364,200 for married couples filing jointly);
24% for incomes over $95,375 ($190,750 for married couples filing jointly);
22% for incomes over $44,725 ($89,450 for married couples filing jointly);
12% for incomes over $11,000 ($22,000 for married couples filing jointly).
The lowest rate is 10% 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 began 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. In addition, the revenue procedure contains a table providing the maximum EITC amount for other categories, income thresholds, and phase-outs.
More adjustments can be found on the IRS website.
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