IRS Announced Significant Inflation Adjustments for Tax Year 2023 - Intuit TurboTax Blog (2024)

With inflation rates being the highest in several decades, the Internal Revenue Service (IRS) announced inflation adjustments for tax year 2023. These inflation adjustments are some of the biggest adjustments made in history that will change individual income tax brackets, and increase some key tax deductions and credits for tax year 2023 (the taxes you will file in 2024).

The IRS announces incremental adjustments to tax benefits every year tied to inflation. But after a year of the highest inflation growth in four decades, the adjustments announced this year are more significant than in previous years. The most noteworthy increases are about 7% for standard deduction amounts, income tax brackets, and the Earned Income Tax Credit for tax year 2023. In a separate announcement, the IRS announced a record increase to 2023 retirement contribution limits.

You are probably wondering, “What are the inflation adjustments?”, “What tax benefits are increased by inflation adjustments?”, “What are the inflation adjustment amounts for the standard deduction, Earned Income Tax Credit, and income tax brackets?”, and “What are the increased retirement contribution limits?”

TurboTax has you covered. Below we will cover the key announced adjustments and what that may mean for you.

The standard deduction is a specific deduction that the IRS allows and adjusts for inflation every year. The standard deduction is based on filing status and you can get an additional amount if you are 65+ or blind. Following tax reform, the IRS reports that close to 90% of taxpayers now take the standard deduction instead of itemizing their deductions. With the recently announced inflation adjustments even more people may move into claiming the standard deduction instead of itemizing their deductions since their standard deductions may be more.

For single taxpayers (and those married filing separately) the standard deduction rises to $13,850 for 2023 (up $900 from the $12,950 in tax year 2022). The 2023 standard deduction for couples married filing jointly is $27,700 (up $1,800 from $25,900 in tax year 2022). For those filing head of household the standard deduction will be $20,800 for tax year 2023 (up $1,400 from $19,400 amount for tax year 2022).

For taxpayers who are blind or at least age 65, you can claim an additional standard deduction. The additional standard deduction for 2023 is $1,850 per single person (or head of household) or $1,500 per qualifying individual that is married filing jointly or separately. If you are both 65 or older and blind, the additional deduction amount is doubled totaling $3,700 for 2023 for single persons (or head of household) and $3,000 per individual that is married filing jointly or separately.

Beginning in tax year 2023, if you can be claimed as a dependent on another person’s tax return, yourstandard deduction is limited to the greater of $1,250 or your earned income plus $400.

What are the Marginal Income Tax Rates?

For tax year 2023, the top marginal tax rate will remain at 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).

The other marginal rates are:

• 35% for single taxpayers with incomes over $231,250 ($462,500 for married couples filing jointly)
• 32% for single taxpayers with incomes over $182,100 ($364,200 for married couples filing jointly)
• 24% for single taxpayers with incomes over $95,375 ($190,750 for married couples filing jointly)
• 22% for single taxpayers with incomes over $44,725 ($89,450 for married couples filing jointly)
• 12% for single taxpayers with 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).

Generally, capital gains are profits you made from a sale of assets and investments – think stocks, bonds, cryptocurrency, real estate. Depending on how long you have held the asset (short term vs long term) will determine how it is taxed. Most net capital gain is no higher than 15% for most people and some or all net capital gains may be taxed at 0% depending on your income.

For tax year 2023, a capital gains rate of 15% applies if your taxable income is more than $44,625 but less than or equal to $492,300 for a single filer (or more than $89,250 up to $553,850 for those married filing joint returns).

The top rate of 20% will not apply until single filers income is more than $492,300 or more than $553,850 for married filing joint filers.

Earned Income Tax Credit (EITC) is the country’s largest program for working people with low to moderate income levels with millions of Americans receiving EITC each year. For tax year 2023, the maximum EITC amount is $7,430 for qualifying taxpayers who have three or more qualifying children. This amount is up from $6,935 for tax year 2022.

Beginning in tax year 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that allow for the carryover of unused dollars, the maximum carryover amount will be $610.

For tax year 2023, Medical Savings Accounts for individuals who have self-only coverage, the plan must have an annual deductible that is not less than $2,650 but not more than $3,950. For self-only coverage, the maximum out-of-pocket expense amount is $5,300. For family coverage, the annual deductible is not less than $5,300 but the deductible cannot be more than $7,900. For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023.

Employers and employees are required to have a percent of their wages withheld for taxes under the Federal Insurance Contributions Act – or FICA. FICA payroll taxes are composed of social security taxes (old-age, survivors and disability insurance taxes) and Medicare taxes (hospital tax insurance). The maximum amount of earnings subject to these payroll taxes will increase in 2023 to $160,200 up from the $147,000 in 2022.

The contribution limit for employees who participate in retirement accounts such as 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has increased to $22,500 for 2023 (up from $20,500 in 2022).

The limit on annual contributions to an IRA increased to $6,500 for 2023 (up from $6,000 in 2022). The IRA catch up contribution limit for individuals aged 50 and over has not changed and remains at an additional $1,000.

• Fringe Benefits: The monthly limit for tax-free qualified public transportation and parking fringe benefits increases to $300 (up $20 from $280 monthly limitation for 2022).
• Foreign Earned Income Exclusion: For taxpayers earning foreign income, the income exclusion for tax year 2023 is $120,000 up from $112,000 for tax year 2022.
• Qualified Adoption Expenses: The maximum credit allowed for adoptions for tax year 2023 is up to $15,950, up from the maximum of $14,890 for 2022.
• Gift Tax: For those gifting, the annual exclusion for gift tax increases to $17,000 per recipient for calendar year 2023, up from $16,000 for calendar year 2021.

Don’t worry about knowing these tax rules. You can come to TurboTax and fully hand your taxes over to a TurboTax Live tax expert available in English and Spanish who can do your taxes from start to finish. All from the comfort of your home.

21 responses to “IRS Announced Significant Inflation Adjustments for Tax Year 2023”

1. 

   What are the new IRRMA cutoffs for 2023 income

   Reply

   • 

     Hi Steven,
     The Social Security Administration (SSA) determines who pays an IRMAA based on the income reported 2 years prior. So for 2023, the SSA will look at your 2021 tax return. For 2023, those whose 2021 income exceeded $97,000 (individual return) or $194,000 (joint return) may pay a IRMAA.
     Hope this helps!
     Sincerely,
     Katharina Reekmans

     Reply

2. 

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   Just to clarify the additional standard deduction amount for aged or blind, per the IRS website the additional deduction is only $1,500. The amount is increased to $1,850 if the taxpayer is unmarried and not a surviving spouse.

   Reply

3. 

   Great info, but this came out months ago! Already had it in my worksheet back in April

   Reply

4. 

   I have a great understanding of tax law and this article was written in a way that made it easy for the average person to understand. Thank you!

   Reply

5. 

   Definitely helpful! Thank you!

   Reply

6. 

   Thank you!

   Reply

7. 

   Very informative! Thank you!

   Reply

   • 

     Thank You for the info.

     Reply

8. 

   Good morning I would like to do my my income tax next year with yaĺl again been with yall since 2018 please keep me updated thank you

   Reply

   • 

     See Also

     55% Of Americans Say They're Behind on Retirement Savings - Finance Quick Fix

     Thank you very much for the information. appears like a refund might be in the future.👏🏽👏🏽👍🏽👍🏽

     Reply

9. 

   Very useful information to know. Thank you!

   Reply

10. 

    Good info. Thanks

    Reply

11. 

    Thanks for the great article and update, you should include the Social Security and Medicare amounts for us elders.

    Reply

12. 

    Good to know where we stand for 2023.

    Reply

13. 

    This is nice information to know. Thanks

    Reply

14. 

    Thank you!

    Reply

15. 

    Great information. Thanks very much.

    Reply

16. 

    Thanks for important go head changes for the year 2023. Surely will be h we helpful.

    Reply

17. 

    Thanks for the useful summary of 2023 tax changes!

    Reply

18. 

    Thank you! Great information.

    Reply