2023 IRS Inflation Adjustments:

By Argent Wealth Management, LLC on October 20, 2022

(Note: The 2023 tax adjustments described below generally apply to tax returns filed in 2024.)

Revenue Procedure 2021-38:

The IRS announced on October 18 that 2023 tax year annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes.

The Tax Items for 2023 of Greatest Interest to most taxpayers include the following dollar amounts:

1. The Standard Deduction for Married Couples filing jointly for tax year 2023 rises to $27,700 (+$1,800 increase from the prior year)

2. For Single Taxpayers and Married Individuals filing separately, the standard deduction rises to $13,850 for 2023 (+$900, and for
   • For Heads of Households, the standard deduction will be $20,800 for tax year 2023 (+$1,400 increase from the prior year)

3. The Annual Exclusion for Gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2021

4. Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000 (up from $12,060,000 for estates of decedents who died in 2022
    
5. The 2023 Foreign Earned Income exclusion is now $120,000 (up from $112,000 for tax year 2022)

6. The new 2023 Alternative Minimum Tax exemption is $81,300 and begins 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)
     • (The prior 2022 exemption amount was $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))

7. Marginal 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 as follows:

• 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 incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).

8. The new 2023 Maximum Earned Income Tax Credit (EITC) Amount is $7,430 (was $6,935 in 2022) for qualifying taxpayers who have 3 or more qualifying children

(The table below provides the maximum EITC amount for other categories, income thresholds and phase-outs.)

9. For the taxable years beginning in 2023, the Dollar Limitation for Employee Salary Reductions for Contributions to Health Flexible Spending Arrangements increases to $3,050.

10. For tax year 2023, Participants who have Self-only Coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,650, up $200 from tax year 2022; but not more than $3,950, an increase of $250 from tax year 2022
    • For Self-only Coverage, the maximum out-of-pocket expense amount is $5,300 (+$350 from 2022).
    • For Family Coverage, the annual deductible is not less than $5,300, up from $4,950 for 2022; however, the deductible cannot be more than $7,900, up $500 from the limit for tax year 2022. For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023, an increase of $600 from tax year 2022.

Items Unaffected by Inflation Indexing:

By statute, certain items that were indexed for inflation in the past are currently not adjusted.

1. The Personal Exemption for tax year 2023 remains at 0, as it was for 2022, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act. 
    
2. For 2023, as in 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
    
3. The modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020.
   • The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

IRS provides tax inflation adjustments for tax year 2023. Internal Revenue Service. (2022, October 18). Retrieved October 20, 2022, from https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.