Washington - The yearly inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax modifications, were released by the Internal Revenue Service on the 18th of October, 2022. You can read further information on these yearly modifications in our article.
What is New for 2023?
The energy efficient commercial buildings deduction will be indexed for inflation starting with tax year 2023 thanks to the Inflation Reduction Act, which also extended other tax advantages connected to energy. For tax year 2023, the appropriate dollar amount used to calculate the maximum deduction is $0.54 increased (but not above $1.07) by $0.02 for each percentage point by which the total annual energy and power costs for the building are certified to have decreased by a percentage greater than 25%. For specific property, the appropriate dollar value used to calculate the higher deduction amount is $2.68 increased (but not above $5.36) by $0.11 for each percentage point that the total annual energy and power costs for the building are certified to be decreased by.
Highlights of Revenue Procedure
The tax returns filed in 2024 must normally make the modifications listed below for tax year 2023.
The following sums represent the tax items for tax year 2023 that most taxpayers will find most interesting:
- For married couples filing jointly in tax year 2023, the standard deduction increases to $27,700, an increase of $1,800 over the previous year. The standard deduction will increase by $900 for single filers and married taxpayers filing separately to $13,850 for tax year 2023. For heads of households, the standard deduction will increase by $1,400 to $20,800 for tax year 2023.
- Marginal Rates: The top tax rate for single taxpayers who earn more than $578,125 ($693,750 for married couples filing jointly) remains 37% for tax year 2023.
- Other rates include:
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).
For single people with incomes of $11,000 or less, the lowest rate is 10% ($22,000 for married couples filing jointly).
For the 2023 tax year, the Alternative Minimum Tax exemption is set at $81,300 and phases out starting at $578,150 ($126,500 for married couples filing jointly for whom the exemption phases out starting at $1,156,300). The exemption threshold for 2022 was $75,900, and it gradually decreased to $539,900 ($118,100 for married couples filing jointly, for whom the exemption gradually decreased to $1,079,800).
For qualifying taxpayers who have three or more qualifying children, the maximum Earned Income Tax Credit amount for the tax year 2023 is $7,430, up from $6,935 for the previous year. A table detailing the maximum EITC amount, income thresholds, and phase-outs is included in the revenue procedure.
The monthly cap for qualified parking and qualified transportation fringe benefits rises to $300 for the tax year 2023, an increase of $20 over the cap for 2022.
The maximum amount that can be deducted from an employee's pay for contributions to health flexible spending accounts will rise to $3,050 for the tax years starting in 2023. The maximum amount that can be carried over under cafeteria plans is now $610, an increase of $40 from taxable years starting in 2022.
The plan's annual deductible must be at least $2,650 for tax year 2023 (an increase of $200 from tax year 2022) and at most $3,950 (an increase of $250 from tax year 2022) for individuals with self-only coverage in a Medical Savings Account. The maximum out-of-pocket cost for self-only coverage is $5,300, an increase of $350 from 2022. Family coverage's annual deductible for tax year 2023 is $5,300, up from $4,950 for tax year 2022. It cannot, however, exceed $7,900, an increase of $500 from the cap for tax year 2022. The out-of-pocket expense cap for family coverage is $9,650 for tax year 2023, up $600 from tax year 2022.
The foreign earned income exclusion increased to $120,000 for tax year 2023 from $112,000 for tax year 2022.
The basic exclusion amount for estates of decedents who pass away in 2023 is $12,920,000, up from a total of $12,060,000 for estates of decedents who passed away in 2022.
For the calendar year 2023, the yearly exclusion for gifts rises to $17,000 from $16,000 for the previous year.
The amount of approved adoption expenses up to $15,950 is the maximum credit allowed for adoptions for tax year 2023, up from $14,890 for 2022.
Items unaffected by indexing
Certain items that were once indexed for inflation are currently not updated by statute.
This elimination of the personal exemption was a provision of the Tax Cuts and Jobs Act, and it will remain at zero for tax year 2023 as it did for 2022.
There is no itemized deduction cap for 2023, just like there isn't one for 2022, 2021, 2020, 2019, or 2018. This is because the Tax Cuts and Jobs Act removed the cap on itemized deductions.
For taxable years beginning after December 31, 2020, the modified adjusted gross income amount utilized by joint filers to calculate the reduction in the Lifetime Learning Credit given in section 25A(d)(2) is not adjusted for inflation.For taxpayers whose modified adjusted gross income exceeds $80,000 ($160,000 for combined returns), the Lifetime Learning Credit is phased off.
