The Internal Revenue Service released its inflation adjustments for 2023 federal income tax rates and brackets this week.
The IRS automatically adjusts tax rates each year to reflect inflation. Usually these adjustments are small. But following the fastest price growth in four decades, Americans can expect noticeably higher tax brackets and a larger standard deduction next tax year.
The breakpoint for each tax bracket will be about 7% higher across the board in 2023.
The IRS hasn’t yet released 2023 limits for 401(k) accounts and individual retirement accounts (IRAs), but those numbers are expected next month.
2023 Tax Brackets
There are seven tax brackets that range from 10% to 37%.
You’ll use the 2022 brackets to determine your tax bill that will be due on or before April 18, 2023. You’ll use 2023 brackets when you file your taxes in 2024.
Tax brackets are also used to determine your ordinary income rate.
Unmarried Individuals
| Tax Bracket | 2022 Taxable Income (use when you file in 2023) | 2023 Taxable Income (use when you file in 2024) |
|---|---|---|
| 10% | Up to $10,275 | Up to $11,000 |
| 12% | $10,275 to $41,775 | $11,000 to $44,725 |
| 22% | $41,775 to $89,075 | $44,725 to $95,375 |
| 24% | $89,075 to $170,050 | $95,375 to $182,100 |
| 32% | $170,050 to $215,950 | $182,100 to $231,250 |
| 35% | $215,950 to $539,900 | $231,250 to $578,125 |
| 37% | Over $539,900 | Over $578,125 |
Married Individuals Filing Jointly or Surviving Spouses
| Tax Bracket | 2022 Taxable Income (use when you file in 2023) | 2023 Taxable Income (use when you file in 2024) |
|---|---|---|
| 10% | Up to $20,550 | Up to $22,000 |
| 12% | $20,550 to $83,550 | $22,000 to $89,450 |
| 22% | $83,550 to $178,150 | $89,450 to $190,750 |
| 24% | $178,150 to $340,100 | $190,750 to $364,200 |
| 32% | $340,100 to $431,900 | $364,200 to $462,500 |
| 35% | $431,900 to $647,850 | $462,500 to $693,750 |
| 37% | Over $647,850 | Over $693,750 |
Head of Household
| Tax Bracket | 2022 Taxable Income (use when you file in 2023) | 2023 Taxable Income (use when you file in 2024) |
|---|---|---|
| 10% | Up to $14,650 | Up to $15,700 |
| 12% | $14,650 to $55,900 | $15,700 to $59,850 |
| 22% | $55,900 to $89,050 | $59,850 to $95,350 |
| 24% | $89,050 to $170,050 | $95,350 to $182,100 |
| 32% | $170,050 to $215,950 | $182,100 to $231,250 |
| 35% | $215,950 to $539,900 | $231,250 to $578,100 |
| 37% | Over $539,900 | Over $578,100 |
Not sure of your filing status? This interactive IRS quiz can help you determine the correct status. If you qualify for more than one, it tells you which one will result in the lowest tax bill.
Tax rates apply to the income within each bracket. So if you’re an unmarried individual with taxable income of $50,000, you won’t pay 22% of that $50,000 to Uncle Sam.
According to the 2023 tax brackets, you’d pay:
- $1,110 — 10% on the first $11,000
- $4,047 — 12% on the next $33,725 ($44,725 – $11,000 = $33,725)
- $1,160.50 — 22% on the next $5,275 ($50,000 – $44,725 = $5,275)
- $6,317.50 — total tax bill
Even though your marginal tax rate is 22%, you’d only pay 12.64% of your taxable income to Uncle Sam.
3 Tax Changes to Know for 2023
Modified tax brackets aren’t the only changes for 2023. Over 60 tax provisions will be adjusted in the new tax year. A few highlights:
1. Some Limited-Income Families Can Get an Extra $495
The maximum Earned Income Tax Credit will increase in 2023 to $7,430, from $6,935 in 2022. You need at least three children to qualify for the maximum amount.
2. The Standard Deduction Is Higher
Most taxpayers get the biggest tax savings by taking advantage of the standard deduction instead of itemizing.
For the 2023 tax year, the standard deduction is:
- $13,850 for single taxpayers and married individuals filing separately, up $900.
- $27,700 for married couples filing jointly and surviving spouses, up $1,800 from tax year 2022.
- $20,800 for heads of household, a $1,400 increase.
3. Estate Tax and Gift Tax Limits Increase
Most Americans don’t need to worry about estate tax or gift tax, but those numbers are going up as well.
In the 2023 tax year, you can give anyone (and as many people as you want) $17,000 in gifts — an increase of $1,000 from 2022 — without paying gift tax.
The estates of people who die during 2023 have a basic exclusion amount of $12.92 million, an increase of $850,000 from 2022. As long as your assets don’t exceed $12.92 million, your heirs don’t need to pay taxes on your estate.
Ready to Start Your 2023 Tax Prep?
If you’re ready to dive into your taxes, you can check out this comprehensive summary of 2023 tax changes courtesy of the IRS.
Even if you’re not ready to jump into 2023 tax planning mode just yet, keep in mind it’s a good time to check your tax withholdings and make adjustments if necessary.
Remember: 2023 tax brackets and other adjustments apply to tax returns filed in 2024.
Just make sure you file your 2022 return or ask for an extension by the April 18, 2023 deadline. If you can’t afford your tax bill, it’s essential that you file a tax return anyway and ask for an IRS payment plan.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].
Rachel Christian, a senior writer at The Penny Hoarder, contributed to this story.
