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The IRS announces 2023 inflation adjustments

person reviewing receipts at a grocery store

With the cost of food and gas higher than it’s been in decades, the IRS has announced significant changes to inflation-based amounts embedded in the tax code. Revenue Procedure 2022-38 was released on October 18, 2022 and addresses over 60 items tied to the cost of living.

The annual adjustments are tied to a formula that tracks inflation, so the 2023 changes are some of the largest in recent history. For many households, the increase to these inflation-adjusted items will mean more take-home pay in 2023. This article highlights five notable inflation adjustment items.

 

1. Tax tables

The percentages for the individual income tax brackets will remain the same, but the earnings threshold that bumps you into the next bracket will be about 7% higher than 2022. This will be welcome news to many taxpayers who haven’t seen their paycheck grow at the same rate as inflation. The formula is intended to prevent “bracket creep,” which occurs when income rises faster than the bracket thresholds.

 

Single taxpayers

Tax bracket

2022

2023

10%

$0

$0

12%

$10,275

$11,000

22%

$41,775 

$44,725

24%

$89,075

$95,375

32%

$170,050

$182,100

35%

$215,950

$231,250 

37%

$539,900

$578,125

(IRS)

 

Married filing jointly

Tax Bracket

2022

2023

10%

$0

$0

12%

$20,550

$22,000

22%

$83,550

$89,450

24%

$178,150

$190,750

32%

$340,100

$364,200

35%

$431,900

$462,500

37%

$647,850

$693,750

(IRS)

 

2. Standard deduction

For taxable years beginning in 2023, the standard deduction amount will increase $1,800 for married filing jointly taxpayers, $1,400 for heads of households and $900 for single individuals and married individuals filing jointly.  The 2023 amounts are as follows:

 

Married Filing Jointly                                                             $27,700

and Surviving Spouses (§ 1(j)(2)(A))

 

Heads of Households (§ 1(j)(2)(B))                                         $20,800

 

Single individuals (§ 1(j)(2)(C))                                               $13,850

and Married Filing Separately (§ 1(j)(2)(D))

 

The standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of (1) $1,250, or (2) the sum of $400 and the individual’s earned income. 

The additional standard deduction amount for the aged or the blind is $1,500. The additional standard deduction amount is increased to $1,850 if the individual is also unmarried and not a surviving spouse.

 

3. Qualified transportation fringe benefit

The monthly limitation under § 132(f)(2)(A) regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $300. The monthly limitation under § 132(f)(2)(B) regarding the fringe benefit exclusion amount for qualified parking is $300. This is an increase of $20 from 2022.

 

4. Earned income credit

The following amounts are used to determine the earned income credit under § 32(b). The “earned income amount” is the amount of earned income at or above which the maximum amount of the earned income credit is allowed.

The “threshold phaseout amount” is the amount of adjusted gross income (or, if greater, earned income) above which the maximum amount of the credit begins to phase out.

The “completed phaseout amount” is the amount of adjusted gross income (or, if greater, earned income) at or above which no credit is allowed.

The threshold phaseout amounts and the completed phaseout amounts shown in the table below for married taxpayers filing a joint return include the increase provided in §32(b)(2)(B), as adjusted for inflation for taxable years beginning in 2023.

The threshold phaseout amounts and the completed phaseout amounts shown in the table below for single, surviving spouse, or head of household taxpayers also apply to married taxpayers who are not filing a joint return and satisfy the special rules for separated spouses in § 32(d).

 

Number of Qualifying Children

Item                                         One                 Two                 Three or More            None

 

Earned Income

Amount                                   $11,750           $16,510           $16,510                       $7,840

 

Maximum Amount

of Credit                                  $3,995             $6,604             $7,430                         $600

 

Threshold Phaseout                $21,560           $21,560           $21,560                       $9,800

Amount (Single,

Surviving Spouse, or

Head of Household)

 

Completed Phaseout             $46,560           $52,918           $56,838                       $17,640

Amount (Single,

Surviving Spouse, or

Head of Household)

 

Threshold Phaseout                $28,120           $28,120           $28,120                       $16,370

Amount (Married Filing

Jointly)

 

Completed Phaseout             $53,120           $59,478           $63,398                       $24,210

Amount (Married Filing

Jointly)

 

5. Annual exclusion for gifts

(1) For calendar year 2023, the first $17,000 of gifts to any person (other than gifts of future interests in property) are not included in the total amount of taxable gifts under § 2503 made during that year.

(2) For calendar year 2023, the first $175,000 of gifts to a spouse who is not a citizen of the United States (other than gifts of future interests in property) are not included in the total amount of taxable gifts under §§ 2503 and 2523(i)(2) made during that year.

The IRS’s recent inflation adjustments are significant for individual taxpayers and accountants. As tax season approaches, this is a reminder of the importance of staying informed of impending tax revisions.  

Becker keeps you abreast of everything tax with our taxation CPE courses. Find one that fits your needs here.

The content contained in this article is for informational purposes only and is not tax advice. You should consult a tax advisor for advice applicable to your situation.

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About the author

Tara Fisher has been practicing international tax for more than 20 years. Her professional background includes working for the U.S. Congress Joint Committee on Taxation, the national tax practice of PwC and American University in Washington D.C. During her time with Congress, Tara worked on the Senate Finance Committee's investigation of Enron Corporation and helped draft tax policies that were later adopted as part of the American Jobs Creation Act of 2004. She also assisted the Senate Foreign Relations Committee with the ratification of bilateral income tax treaties, including conventions with the United Kingdom, Japan and Australia. While working for PwC, Tara was stationed abroad in London, where she advised European companies investing in the United States. Tara is a Certified Public Accountant in the states of Pennsylvania and Virginia. She also holds both a Bachelors and Masters degree from the University of Virginia.EducationUniversity of VirginiaBAMACredentialsCPATeaching & instructionAmerican UniversityBecker CPEIntroduction to International Foreign Tax CreditForeign Derived Intangible Income RulesOverview of the Federal Tax SystemWhat do you love about Becker?"It's an opportunity to engage with current material in a flexible and fulfilling way."What would you tell an accounting student today?"Accounting is a career that provides endless opportunities. My career has included working abroad in London, working on Capital Hill in Washington DC, and working as professor on two different college campuses. It's a career that has given me an opportunity to pivot many times and allowed me to match my professional goals with the priorities in my personal life. I love it!"Becker fun fact"My career in international tax has fostered a love for travel. I've been to nearly every continent, and my favorite destination is London."

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