Important Updates for Tax Year 2023

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Each year the IRS makes inflation adjustments for several deductions, the tax rate schedules, and a host of other tax provisions. The inflation adjustments apply to tax year 2023 returns, which will be filed in 2024.   

The IRS adjusted more than 60 tax provisions for inflation. Here are some of the key updates to keep in mind as you begin tax planning for the New Year and beyond. 

Standard Deduction 

The standard deduction rose $1,800 for married filing jointly to $27,700 for tax year 2023. Single taxpayers and married filing separately can take a $13,850 standard deduction, up $900 from the previous year, if they choose not to itemize. 

Tax Brackets 

The top tax rate remained the same (37%), as did other marginal rates. The income levels to which they apply were adjusted for inflation. Here are the rates and brackets for tax year 2023: 

  • 37% for single taxpayers with incomes higher than $578,125 ($693,750 for married filing jointly) 
  • 35% for single taxpayers with incomes over $231,250 ($462,500 for married filing jointly) 
  • 32% for single taxpayers with incomes over $182,100 ($364,200 for married filing jointly) 
  • 24% for single taxpayers with incomes over $95,375 ($190,750 for married filing jointly) 
  • 22% for single taxpayers with incomes over $44,725 ($89,450 for married filing jointly) 
  • 12% for single taxpayers with incomes over $11,000 ($22,000 for married filing jointly) 
  • 10% for single taxpayers with incomes of $11,000 or less ($22,000 or less for married filing jointly). 

Alternative Minimum Tax 

The alternative minimum tax (AMT) exemption for tax year 2023 has risen $5,400 to $81,300 for individual taxpayers and by $8,400 to $126,500 for married couples filing jointly. The AMT begins to phase out at $578,150 for individual taxpayers and at $1,156,300 for those married and filing jointly.

Estate and Gift Tax 

The Tax Cuts and Jobs Act of 2017 more than doubled the estate tax exclusion for wealthy individuals. Despite attempts in 2021, Congress has not yet been successful at bringing it back down. Until the House and Senate can agree on changes, exclusion amounts set in 2018 will continue to be adjusted for inflation. 

For now, the estates of individual decedents who die during tax year 2023 will have a basic exclusion of $12,920,000. That’s up from $12,060,000 in 2022. The exclusion rose to $25.84 million for estates of married couples for tax year 2023. 

Exclusions for Gifts   

The IRS also increased the annual gift tax exclusion for individuals for tax year 2023 to $17,000 from $16,000, the highest exclusion amount yet. Individual taxpayers can gift up to $17,000 each to any number of recipients without having to pay a gift tax. The exclusion is per gifting individual rather than per recipient. This means each spouse in a married couple can gift up to $17,000 tax-free resulting in a total tax-free gift exclusion per couple of $34,000 per recipient. 

IRA and 401(k) Contributions 

While limits on IRA contributions were one of the few things that were not adjusted for inflation in 2022, the IRS increased the maximum annual contribution limit for individuals under 50 years old to $6,500. For those age 50 and over, the maximum allowable contribution increased to $7,500, with both rates being up $500 from 2022. 

Contribution maximums for 401(k)s were also increased to $22,500 for individuals younger than 50 and $30,000 for individuals aged 50 and older. 

Earned Income Credit 

The maximum earned income tax credit (EITC) increased by $495 for taxpayers with three or more qualifying children to $7,430 in tax year 2023. For single taxpayers and married filing jointly with no children, the maximum EITC is $600 in 2023. The maximum 2023 EITC is $3,995 for one qualifying child and $6,604 for two qualifying children. 

Have Questions? Call the Experience Tax Attorneys at Wiggam Law 

Worried about the upcoming tax season? Wiggam Law can help get you connected with tax preparers that will make sure your returns are correct and filed on time. If you find after calculating your taxes that you cannot pay your tax debt and need to negotiate a payment plan, the experienced attorneys at Wiggam Law can evaluate your situation and recommend a course of action. Contact metro Atlanta’s top tax attorneys by clicking here or give us a call at (404) 233-9800.