The IRS has announced changes to income tax brackets, the standard deduction and estate taxes that are designed to offset the impact of inflation and leave more money in taxpayers’ pockets.
The standard deduction will increase by $1,800 for married couples filing jointly, by $1,400 for heads of households and by $900 for single taxpayers and married taxpayers filing separately, the IRS announced yesterday.
The income thresholds for tax brackets are among the provision changes “of greatest interest to most taxpayers,” the IRS said.
While tax rates themselves aren’t changing and range from 10% to 37%, the IRS has shifted the income cutoffs upward across all tax brackets to account for inflation.
The top rate of 37% will apply to individual single taxpayers with income over $578,125 and married couples filing jointly with income over $693,750, which is up from last year’s $539,900 and $647,850, respectively.
The other new IRS income cutoffs for each tax bracket 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 Alternative Minimum Tax (AMT) exemption amount for tax year 2023 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 2022 AMT 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), the IRS said.
For tax year 2023, the foreign earned income exclusion also jumped to $120,000 from $112,000 in 2022.
The estates of decedents who die during 2023 will receive an increased basic exclusion amount of $12,920,000, up from $12,060,000 in 2022, the agency added.