The short answer is “yes.” On October 18, 2022, the Internal Revenue Service (the “IRS”) issued Revenue Procedure 2022-38 (the “Procedure”). This Procedure adjusted certain dollar amounts related to tax items due to inflation. What you may not know is that certain dollar amounts contained in the tax code are subject to inflation. This means the IRS will adjust these items on a yearly basis to take into account inflation.
As we all know, inflation has hit an all-time high this year, and costs continue to rise with no end in sight. However, one piece of good news is that the Procedure adjusts the individual tax brackets and many more items for the 2023 tax year to take into account this inflation. This means there is a possibility that you may see a slightly larger refund or slightly less amount due when you file your 2023 tax return.
The Standard Deduction
The standard deduction for a married couple filing jointly increased to $27,000, which is up $1,800 from the previous year.
For single taxpayers and married individuals filing separately, the standard deduction increased to $13,850, which is up $900.00.
For head of households, the standard deduction will be $20,800, which is up $1,400 from last year.
The Individual Tax Brackets
The adjusted individual income tax brackets are as follows:
- 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly);
- 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);
- 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
This compares to the 2022 marginal tax rates as follows:
- 37% for individual single taxpayers with incomes greater than $539,900 ($647,850 for married couples filing jointly);
- 35%, for incomes over $215,950 ($431,900 for married couples filing jointly);
- 32% for incomes over $170,050 ($340,100 for married couples filing jointly);
- 24% for incomes over $89,075 ($178,150 for married couples filing jointly);
- 22% for incomes over $41,775 ($83,550 for married couples filing jointly);
- 12% for incomes over $10,275 ($20,550 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $10,275 or less ($20,550 for married couples filing jointly).
Alternative Minimum Tax
For the 2023 tax year, the Alternative Minimum Tax exemption is $81,300 and will begin 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). This is compared to the 2022 exemption amount of $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).
Earned Income Tax Credit
The Earned Income Tax Credit is $7,430 for qualifying taxpayers who have three or more qualifying children, which is up from $6,935 for the 2022 tax year.
Monthly Qualified Transportation Fringe Benefit
For the 2023 tax year, this has increased to $300, which is up from $20.00 for the 2022 tax year.
Annual Gift Exclusion
The Annual Gift Exclusion amount increases to $17,000, which is up from $16,000 for the 2022 tax year.
Basic Exclusion Amount for Estates
The Basic Exclusion Amount for estates of decedents who die during 2023 is $12,920,000, up from a total of $12,060,000 for estates with decedents who died in 2022.
Bottom Line
Therefore, when taxpayers file their 2023 tax return they may notice a slightly larger refund (or a slightly reduced amount owed). These are some, but not all of the items that the Procedure adjusted for inflation. It is highly encouraged that each taxpayer discusses their unique situation with their accountants and CPAs to ensure the most beneficial tax return. Note, the above adjustments apply to the 2023 tax year and will not affect your 2022 tax return.