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Tax Inflation Adjustments for 2023

Good news from the IRS this week as the tax inflation adjustments for 2023 have been released.  The income tax rates, certain deductions, and limitations are adjusted for inflation EVERY year. Lately, these adjustments have been fairly minimal. However, thanks to this year’s sky-high inflation, the IRS’ increases are particularly generous at about 7% across the board. These adjustments affect the 2023 tax year or the tax returns you will file by April 15th, 2024.  Here are the tax rate changes. revised standard deduction amounts, and revised limits for 2023.

Standard Deduction

2023 Tax Year
2022 Tax Year
Married Filing Jointly
$ 27,700
$ 25,900
Single and Married Filing Separately
$ 13,850
$ 12,950
Head of Household
$ 20,800
$ 19,400

Marginal Income Tax Rates

Single
Married Filing Jointly
37%
$578,126 +
$693,751 +
35%
$231,251- $578,125
$462,501 – $693,750
32%
$182,101 – $231,250
$364,201 – $462,500
24%
$95,376 – $182,100
$190,751 – $364,200
22%
$44,726 – $95,375
$89,451 – $190,750
12%
$11,001 – $44,725
$22,001 – $89,450
10%
$0 – $11,000
$0 – $22,000

Capital Gains Tax Rates

Tax Rate
Single Income
Joint Filers Income
0%
Up to $ 44,624
Up to $ 89,249
15%
$ 44,625 – $ 492,300
$ 89,250 – $ 553,850
20%
>$ 492,300
>$ 553,850

Social Security Wage Limit Also Rises:

That cost of living adjustment also impacts the amount of earnings subject to the Social Security payroll tax.  The maximum amount of earnings subject to what is known as the Federal Insurance Contributions Act — or FICA — tax will increase to $160,200 from $147,000 in 2023. Employers and employees each contribute 6.2 percent of wages up to that salary threshold, which is adjusted every year based on average wage growth.

 

Earned Income Tax Credit

Maximum EITC is $7,430 for qualifying taxpayers with three or more qualifying children.

 

Health Flexible Savings Accounts

The dollar limitation for employee salary reductions for contributions to health FSAs will be $3,050. The carryover of unused amounts permitted for cafeteria plans have a maximum of $610.

Medical Savings Accounts

Self-only Coverage
Family Coverage
Annual Deductible Minimum
$2,650
$5,300
Annual Deductible Maximum
$3,950
$7,900
Maximum Out-of-Pocket Expense
$5,300
$9,650

Foreign Earned Income Exclusion

Increased to $120,000 (from $112,000 in 2022).

 

Unified Credit Against Estate Tax

Estates of decedents that have died in 2023 have a basic estate tax exclusion of $12,920,000 (for 2022 it is currently at $12,060,000)

 

Annual Gift Tax Exclusion

Increased to $17,000 (up from $16,000 in 2022)

 

Adoption Credit and Exclusion for Adoption Assistance

The maximum tax credit for adoptions is $15,950. If the employees received adoption assistance, they will be able to exclude up to $15,950 from income.

 

Please contact your Wegner CPAs tax adviser if you have year-end tax planning needs that are impacted by these inflation-adjusted items.

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