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, according to Thomson Reuters. These adjustments reflect the average Consumer Price Index for All-Urban Customers for the 12-month period ending the previous August 31.
Soaring inflation in 2022 means you will see a bigger-than-usual spike in the 2023 tax code. Bloomberg Tax projects that inflation-adjusted amounts will increase by roughly 7.1% from 2022 — more than double the previous year’s 3% gain.
According to both Bloomberg Tax and Thomson Reuters, the standard deduction for married taxpayers filing jointly in 2023 is projected to be $27,700, up from $25,900 in 2022. Single taxpayers and married taxpayers filing separately will see the standard deduction rise to $13,850 in 2023 from $12,950 in 2022. Heads of households will see the standard deduction rise to $20,800 in 2023 from $19,400 in 2022.
The additional standard deduction for blind people and senior citizens will be $1,500 for married taxpayers and $1,850 for singles and heads of household in 2023.
For an individual who can be claimed as a dependent on another’s return, the basic standard deduction for 2023 will be either $1,250 (vs. $1,150 in 2022) or $400 plus the individual’s earned income (unchanged from 2022), whichever is greater. However, the standard deduction can’t exceed the regular standard deduction for that individual.
Tax brackets are also expected to see a big change in 2023. For individual taxpayers and married separate filers, these are the projected tax brackets for 2023:
- Earnings of $11,000 or less: 10%
- Earnings of $11,001-$44,725: $1,100 plus 12% of the amount over $11,000
- Earnings of $44,726-$95,375: $5,147 plus 22% of the amount over $44,275
- Earnings of $95,376-$182,100: $16,290 plus 24% of the amount over $95,375
- Earnings of $182,101-$231,250: $37,104 plus 32% of the amount over $182,100
- Earnings of $231,251-$578,125: $52,832 plus 35% of the amount over $231,250
- Earnings of $578,126 or higher: $174,238.25 plus 37% of the amount over $578,125
For married taxpayers filing separately, the brackets are expected to be the same as for single filers except at the highest brackets:
- Earnings of $231,251 to $346,875: $52,832.00 plus 35% of the amount over $231,250
- Earnings of $346,876 or higher: $93,300.75 plus 37% of the amount over $346,875
For married taxpayers filing jointly and surviving spouses, these are the projected 2023 tax brackets:
- Earnings of $22,000 or less: 10% of taxable income
- Earnings of $22,001-$89,450: $2,200 plus 12% of the amount over $22,000
- Earnings of $89,451-$190,750: $10,294 plus 22% of the amount over $89,450
- Earnings of $190,751-$364,200: $32,580 plus 24% of the amount over $190,750
- Earnings of $364,201-$462,500: $74,208 plus 32% of the amount over $364,200
- Earnings of $462,501-$693,750: $105,664 plus 35% of the amount over $462,500
- Earnings of $693,751 or higher: $186,601.50 plus 37% of the amount over $693,750
There will also be new 2023 brackets for individual taxpayers filing as heads of household.
Similarly, capital gains tax brackets will widen in 2023. Short-term capital gains rates for assets held less than a year are the same as the income tax rates. For long-term capital gain rates, what you pay depends on your taxable income.
For 2023, the 0% capital gains rate applies to adjusted net capital gains of up to $44,625 for single filers and married taxpayers filing separately (vs. $41,675 in 2022). For joint returns and surviving spouses, the 0% rate applies to adjusted net capital gains of up to $89,250 (vs. $83,350 in 2022).
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The 15% capital gains tax rate applies to adjusted net capital gains over the amount subject to the 0% rate, and then up to $553,850 for joint returns and surviving spouses (vs. $517,200 in 2022); up to $492,300 for single filers (vs. $459,750 in 2022); and up to $276,925 for married taxpayers filing separately (vs. $258,600 in 2022).
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