On Tuesday, October 18th, the IRS announced the 2023 tax year annual inflation adjustments for over 60 tax provisions. Outlined in Revenue Procedure 2022-38, it provides extensive details on each of the adjustments designed to prevent bracket creep”. This ensures that workers who received COLA (cost of living adjustment) increases are not pushed into higher tax brackets. The changes will have an impact on a variety of provisions, from the standard deduction to estate tax limit increases. The updated amounts will be effective for 2023, impacting tax returns filed in early 2024. To help clients, prospects, and others, Whipplewood CPAs have provided a summary of the key details below.
Standard Deduction Increase
Standard Deductions are set to rise across the board.
Filer Type | Current Standard Deduction | New Amount beginning in 2023/2024 | Net Increase |
Married Couples Filing Jointly | $25,900 | $27,700 | $1,800 |
Single Taxpayers & Married Couples Filing Separately | $12,950 | $13,850 | $900 |
Heads of Households | $19, 400 | $20,800 | $1,400 |
Tax Bracket Boost
The IRS is increasing tax brackets by approximately 7% for single taxpayers, joint filers, and heads of households.
Marginal Rates 2023 | Annual Income for Single Taxpayer & Married Couples Filing Separately | Annual Income bracket for Married Couples Filing Jointly | Annual Income Heads of Households |
37% | $578,125 or more | $693,750 or more | $578,100 |
35% | $231,250 or more | $462,500 or more | $231,250 |
32% | $182, 100 or more | $364,200 or more | $182,100 |
24% | $95,375 or more | $190,750 or more | $95,350 |
22% | $44,725 or more | $89,450 or more | $59,850 |
12% | $11,000 or more | $22,000 or more | $15,700 |
10% | Less than $11,000 | Less than $22,000 | Less than $15,700 |
Alternative Minimum Tax Exemption Increase
The 2022 exemption amount was $75,900 and began to phase out at $539,900. In 2023, this will increase to $81,300 and begin to phase out at $578,150. In 2022, the exemption amount was $118,100 for married couples filing jointly, for whom the exemption began to phase out at $1,079,800. For married couples filing jointly, the 2023 exemption amount will increase to $126,500 for married couples and begin to phase out at $1,156,300.
Flexible Spending Accounts Limits Increase
The 2023 tax year will increase the amount taxpayers can contribute to their Flexible Spending Accounts (FSA). Currently, workers can contribute $2,850 to their FSAs which can be used to cover medical expenses. That number will increase to $3,050, which is an increase of approximately 7% for the 2023 tax year
Earned Income Credit Increase
Households that have at least three children and claim the earned income credit will see an increase from $6,935 in 2022 to $7,430.
Tax-Free Gifts Amount Increase
People will be able to give an extra $1000 for monetary to individuals without paying taxes as the amount of tax-free gift money will increase to$17,000 in 2023 from $16,000 in 2022.
Estate Tax Limit Increase
Currently $12.06 million is exempt from estate tax for those who perished in 2022. In 2023, that exemption will increase to $12.96 million which is about 7.1% increase.
Transportation & Parking Fringe Benefits Increase
For 2023 the qualified transportation fringe benefit and the monthly limitation for qualified parking benefit increase by $20 to $300.
Health Flexible Spending Arrangement Increase
Employee salary reductions for contributions to health flexible spending arrangements increase to $3,050 in 2023. For cafeteria plans that allow unused funds to be carried over, the maximum carryover amount is $610 which is an increase of $40 from taxable years.
Medical Savings Account Deductible Increases
| Self-Only Coverage | 2023 Increase |
Annual Deductible | More than $2,650 | $200 |
Annual Deductible | Less than $3,950 | $250 |
Maximum Out-of-Pocket Expense | $5,300 | $350 |
| Family Coverage | 2023 Increase |
Annual Deductible | More than $5,300 | $350 |
Annual Deductible | Less than $7,900 | $500 |
Maximum Out-of-Pocket Expense | $9,650 | $600 |
Adoption Credit Increase
The maximum credit allowed for adoptions for the tax year 2023 increases by $1,060, increasing to $15,950 from $14,890.
Contact Us
The annual IRS announcement provides important insights for Denver taxpayers on the allowable deductions and other amounts available in 2023. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Whipplewood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.