2023 Inflation Adjustments

The IRS has announced the 2023 inflation adjustments to various tax provisions.  Each year the IRS adjusts tax brackets and other items for cost of living increases.  This year, as you can imagine, the increases were higher than what we’ve recently seen.

Here is a selection of the adjustments that are of the greatest interest to most taxpayers.

Standard Deduction.

The amounts for 2023 are: 

• $27,700 for married couples filing jointly (up from $1,800 in 2022); 
• $13,850 (up $900) for single taxpayers and married individuals filing separately. 
• $20,800 (up $1,400) for heads of households. 

Marginal Tax Rates

For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly). 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 the incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).

IRA Contribution. 

The maximum amount of IRA contribution increases to $6,500 for 2023, up from $6,000 in 2022.  Those 50 and over can contributed an additional $1,000.

401(k) contribution. 

The maximum 401(k) deferral limit for 2023 is $22,500, up from $20,500 in 2022.  Those 50 and over can contribute an additional $7,500, up from $6,500 in 2022.

Health Savings Accounts. 

The maximum health savings account contribution for 2023 is $3,850 for individuals and $7,750 for families, up from $3,650 and $7,300 respectively.  Those 55 and over can contribute an additional $1,000.

Health flexible spending accounts.  

For the tax years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health FSAs increases to $3,050.

Annual gift tax exclusion. 

The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for 2022.

Unified credit against estate tax.

Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000 (up from $12,060,000 in 2022).

For more information on these or other inflation limits, please contact your DWD accountant.