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IRS Sets 2023 Tax Brackets, Standard Deductions, and Other Inflation Adjustments Higher

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The Internal Revenue Service has released dozens of inflation adjustments for 2023 that affect individual income tax brackets, deductions and loans, and today’s four decades of hyperinflation have turned into some big increases.

Consider the standard deduction (rather than partial deductions) now demanded by more than 85% of taxpayers. For a married couple filing joint tax returns, this deduction will increase from $25,900 in 2022 to $27,700 in 2023; it will increase from $12,950 to $13,850 for singles and couples who apply separately; will increase from $19,400 to $20,800 for a household head. (A head of household is a single adult with dependents such as children.) The additional standard deduction for someone 65 and older will increase from $1,400 to $1,500 per person in 2022; if this senior is not married, the additional deduction will increase from $1,750 to $1,850 in 2023.

Meanwhile, individual tax brackets for ordinary income as well as for capital gains will jump in 2023. For example, the lowest ordinary income tax bracket of 10% would cover the first $22,000 of taxable income a married couple file jointly. increased from $20,550 in 2022. The 24% tranche for the couple will increase from $178,150 to $190,750, with the top 37% reaching taxable income in excess of $693,750 from $647,850 in 2022.

You can see all 2023 income tax brackets (including salaries, self-employment income and interest) at the bottom of this post on ordinary income. Remember, the 2022 rates here will apply to the 1040 you file in early 2023.

Individual federal tax brackets have been automatically indexed for inflation since 1985—a provision passed in 1981 after a period of inflation that was even higher than the country is currently experiencing. The purpose of the regulations is to ensure that people are not artificially pushed into higher tax brackets by inflation. Those whose income is not increased by inflation may pay lower taxes in 2023 than they did in 2022 – in other words, they can take a tax cut to make up for some of what they lost.

An important non-indexed item, however, is the income levels at which Social Security benefits taxes begin. This means that more moderate-income retirees will pay federal taxes on their 2023 benefits, which will be increased at a cost of 8.7%. living arrangement.

As for the tax rate on qualifying stock dividends and long-term capital gains (i.e. gains from stock held for more than one year), a married couple will not be owed any taxes until their income (including those gains) is above $89,250. $83,350 in 2022. Above that, the profit rate is 15%. The 20% top earning rate is $517,200 in 2022 for a couple, which will rise to over $553,850 in 2023. For individual applicants, the 15% capital gain and dividend rate rises from $41,676 in 2022 to over $44,625 in 2023. But the top 20% won’t affect single individuals until their income exceeds $459,760 to $492,300 in 2023. (Yes, that’s more than half that level for married couples. The highest earning rate is one of the areas where tax codes still penalize marriage, and no, you can’t avoid it by filing separately from your spouse.)

Some key loans are also adjusted for inflation. For example, the maximum income tax credit earned for qualifying taxpayers with three or more children will be $6,935 in 2022 versus $7,430 in 2023. Designed to help working families, the loan builds up with income earned and then gradually starts gradually at fairly modest income levels. For example, a married couple with three children will start seeing the EITC tier of $28,120 in 2023, but will not lose all credit until their income reaches $63,398.

You can see all the adjustments to IRS Income Procedure 22-38 here. (It’s a 28-page document that covers everything from adoption credit to penalties for not making certain returns on time.)

Inflation also means that wealthy people can pass on much more to their heirs, tax-free, either during their lifetime or at their death. An important gift change: You can gift someone else (and as many people as you want) up to $17,000 in 2023, from $16,000 in 2022, without worrying about using your lifetime gift and estate tax exemption or paying gift tax. This lifetime exemption will increase from $12.06 million in 2022 to $12.92 million in 2023. (You can read more about real estate and gift tax changes here.)

Here are the new tax brackets for ordinary income in 2023:

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