2023 Tax Updates: What Changes Can You Expect in the New Year?

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Every year brings something new to U.S income taxes, and 2023 will be no different. Typically, federal income tax brackets and standard deduction amounts are among the items adjusted annually for cost-of-living increases. These adjustments reflect the average Consumer Price Index for All-Urban Customers, which grew at an annual rate of 6.5% in December 2022 — the lowest inflation rate of the year.

Soaring inflation in 2022 means you will see a bigger-than-usual spike in the 2023 standard deduction amount. Earlier this year, Bloomberg Tax projected that inflation-adjusted amounts would increase by about 7% from 2022 — more than double the previous year’s 3% gain. That estimate was made before inflation fell below 7% in December.

In an October announcement, the IRS outlined these changes for 2023:

  • The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700, up $1,800 from 2022. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, an increase of $900 from last year. For heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the previous year.
  • For tax year 2023, the top marginal tax rate remains 37% for individual single taxpayers with annual incomes greater than $578,125 ($693,750 for married couples filing jointly). The other rates are as follows:
    • 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, or $22,000 for married couples filing jointly.
  • The Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 for individual taxpayers and begins to phase out at $578,150. Those numbers are up from $75,900 and $539,900, respectively, in 2022. For married couples filing jointly, the amount is $126,500 and begins to phase out at $1,156,300, up from $118,100 and $1,079,800, respectively, in 2022.
  • The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022.

Certain items that were indexed for inflation in the past are currently not adjusted, according to the most recent IRS data. These include the personal exemption, which remains at $0 for tax year 2023. In addition, there is no limit on itemized deductions in 2023, following the same pattern as the previous five years.

Vance Cariaga contributed to the reporting for this article.

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