To help prevent taxpayers from being taxed in higher income brackets, over 60 tax provisions received annual inflation adjustments for 2023. The adjustments were made to prevent “bracket creep,” which is caused when inflation pushes you into a new tax bracket, rather than an income increase. According to CBS News, this past year’s high inflation rate has made significant changes to IRS brackets compared to previous years.

The IRS announced the new tax brackets and deductions on October 18, 2022. The 2023 tax adjustments will typically apply to tax returns in 2024.

2023 IRS Inflation Adjustments

The IRS highlighted several changes that would positively impact taxpayers.

With marginal tax brackets, the top tax rate is 37% in 2023 for individual taxpayers with incomes greater than $578,125. For married couples filing jointly, the income would have to exceed $693,750. The lowest rate is 10%, which applies to single individuals with an income of $11,000 of less — or married couples filing jointly with an income of $22,000.

Refer to the chart below to confirm your new tax rate based on your salary and whether you’re filing individually or jointly.

Income for Single Taxpayers Income for Married Couples Filing Jointly Tax Rate
$578,125 or more $693,750 or more 37%
$231,250 – $578,124 $462,500 – $693,749 35%
$182,100 – $231,249 $364,200 – $462,499 32%
$95,375 – $182,099 $190,750 – $364,199 24%
$44,725 – $95,374 $89,450 – $190,749 22%
$11,000 – $44,724 $22,000 – $89,449 12%
$0 – $10,999 $0 – 21,999 10%

Source: IRS

Your standard deductions also vary depending on your income and filing status. This year, there was a significant increase compared to past years. For example, the standard deduction for the head of households increased by $600 in 2022. In 2023, the standard deduction increased by $1,400.

2023 Standard Deductions

For married couples filing jointly$27,000 (up $1,800 from 2022)
Single taxpayers or married couples filing separately$13,850 (up $900 from 2022)
Head of households$20,800 (up $1,400 from 2022)

Source: IRS

Adjustments to Exemptions, Exclusions and Credits

Alongside the new tax brackets and standard deductions, the adjustments also apply to exemptions, exclusions and credits.

Alternative minimum tax exemption: For individual taxpayers, the alternative minimum tax exemption is $81,300 and phases out at $578,150. For married couples filing jointly, the minimum is $126,500 and phases out at $1,156,300
Earned income tax credit: The 2023 maximum income tax credit is $7,430 for qualifying taxpayers with three or more children. The amount was raised compared to the maximum of $6,935 in 2022.
Adoption credit: The maximum credit permitted for adoptions in 2023 is $15,950, up from $14,890 in 2022.
Gift tax exclusion: The 2023 annual exclusion for gifts is $17,000 in 2023, up from $16,000 in 2022.
Foreign earned income exclusion: The foreign income exclusion is $120,000 in 2023, up from $112,000 in 2022.
Estate tax exclusion: Those who pass away in 2023 have a basic exclusion amount of $12,920,000, up from $12,060,000 in 2022.
Employee salary reductions: In 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. The maximum carryover amount is $610 — an increase of $40 from 2022.
Medical savings account: In 2023, those who have self-only coverage in a medical savings account cannot have a deductible less than $2,650, from $200 from 2022; but no more than $3,950, an increase of $250 from 2022.

How Might These Inflation Adjustments Impact Taxpayers?

The 2023 inflation adjustments will benefit all taxpayers, with a focus on those who haven’t received a pay increase in the last year. You could receive tax relief by being placed into a lower tax bracket.

“Such inflation adjustments definitely highlight those lower tax rates, ultimately benefiting the middle class who pay most of the tax burdens.” Lars Koch, finance specialist at Kredit Finance told “This move was oriented to seeing the rising prices of staples, energy and consumables lately.”

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: November 21, 2023