As tax season approaches, it's vital to stay abreast of any changes that could affect your filings. Here is a reminder of the Internal Revenue Service (IRS) announcement for the tax year 2023 annual inflation adjustments, encompassing over 60 tax provisions. These adjustments, outlined in Revenue Procedure 2022-38, touch upon various aspects of taxation, including rate schedules and significant changes.
Key Adjustments impacting most Taxpayers
Standard Deduction Increases: The standard deduction sees slight increases across all filing statuses. For married couples filing jointly, it rises to $27,700, while for single taxpayers, it increases to $13,850. Heads of households will see their standard deduction climb to $20,800.
Marginal Tax Rates: The top tax rate remains at 37% for individual single taxpayers earning over $346,875, Head of Household and Surviving Spouses earning over $578,125, and for married couples filing jointly with incomes exceeding $693,750. 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 incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
Alternative Minimum Tax (AMT) Exemption: The AMT exemption amounts for tax year 2023 have been adjusted. Here is a table I created for your easy grasp:
AMT Exemption Amount | Threshold Phaseout Amount | Complete Phaseout Amount | |
Joint Returns or Surviving Spouses | $126,500 | $1,156,300 | $1,662,300 |
Unmarried Individuals (other than Surviving Spouses) | $81,300 | $578,150 | $903,350 |
Married Individuals Filing Separate Returns | $63,250 | $578,150 | $831,150 |
Estates and Trusts | $28,400 | $94,600 | $208,200 |
Earned Income Tax Credit (EITC): The maximum EITC amount for tax year 2023 is $7,430 for qualifying taxpayers with three or more qualifying children. Other income thresholds and phase-out details can be found in the revenue procedure.
Transportation fringe benefit: For tax year 2023, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up $20 from the limit for 2022.
FSA: For the taxable years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, an increase of $40 from taxable years beginning in 2022.
Medical Savings Account: For tax year 2023, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650, up $200 from tax year 2022; but not more than $3,950, an increase of $250 from tax year 2022. For self-only coverage, the maximum out-of-pocket expense amount is $5,300, up $350 from 2022. For tax year 2023, for family coverage, the annual deductible is not less than $5,300, up from $4,950 for 2022; however, the deductible cannot be more than $7,900, up $500 from the limit for tax year 2022. For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023, an increase of $600 from tax year 2022, 2023 numbers shown in below table:
Coverage Type | Deductible (Minimum - Maximum) | Out-of-Pocket Expense Limit |
Self-Only | $2,650 - $3,950 | $5,300 |
Family | $5,300 - $7,900 | $9,650 |
Foreign Earned Income Exclusion: For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 for tax year 2022.
Estate Tax: Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.
Gift Exclusion: The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2022.
Adoption Credit: The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950, up from $14,890 for 2022.
Items Unaffected by Indexing While many tax items have been adjusted for inflation, certain provisions remain unchanged for the 2023 tax year:
Personal Exemption: The personal exemption remains at 0, as per the provisions of the Tax Cuts and Jobs Act.
Limitation on Itemized Deductions: Similar to previous years, there is no limitation on itemized deductions for tax year 2023, also due to the Tax Cuts and Jobs Act.
Modified Adjusted Gross Income (MAGI) for Lifetime Learning Credit: The MAGI threshold for determining the reduction in the Lifetime Learning Credit remains unadjusted for taxable years beginning after December 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).
As always, accurate and timely tax filings are essential to avoid penalties and maximize eligible credits or deductions. If you have specific questions or require assistance, don't hesitate to reach out to us or seek guidance from qualified tax advisors.
Comments