As the prices of the goods and services we buy gradually go up over time, typically, so do our incomes. If the income tax system did not account for this expected change, income taxes would often grow at a faster rate than incomes, likely causing unexpected financial stress. The income taxes assessed in 2023 are no different. Income tax brackets, eligibility for certain tax deductions and credits, and the standard deduction will all adjust to reflect inflation.

The standard deduction for 2023

• married couples filing jointly $27,700 up $1,800 from the prior year.

• single taxpayers and married individuals filing separately, $13,850, up $900,

• head of household, $20,800, up $1,400
  

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:

• • 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).
      

• The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children.

• 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. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610.

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

Higher contribution limits to your IRA

In the past, there has always been a strict limit for those contributing to a traditional or Roth IRA. The contribution limit was $6,000 for most people. Although people over the age of 50 could add $7,000 for catch-up contributions.

The big news here is that these limits will increase by $500 in 2023. So, Americans can now contribute $6,500 to their IRA. This figure increases to $7,500 for those over 50.

Increased contributions to your workplace retirement plan

In the same line of thought, the contribution limits have also increased for employer-sponsored retirement plans. For 2023, the maximum limit of $22,500. Those who qualify for catch-up contributions can also save more for retirement with an increased contribution limit of $30,000.

If you have several workplace retirement plans, these limits include any salary deferrals and

total contributions made to all of them. However, any funds you contribute to other types

of accounts, such as an IRA, don’t affect these thresholds.

Increased thresholds for capital gains tax

The IRS has also changed the threshold for taxes on long-term capital gains. However, short-term gains will still be taxed as ordinary income.

The zero-rate will still apply to those gains within these limits:

• $0 – $44,625 for individuals or married people who file separately

• $0 – $59,750 for heads of household

• $0 – $89,250 for married couples who file jointly

However, the maximum amount of 15% will apply to gains in these ranges:

• $44,626 – $492,300 for individuals

• $44,626 – $276,900 for married people who file separately

• $59,751 – $523,050 for heads of household

Please contact my office for more information.