New income tax brackets for 2023 may save you money

The 2023 standard deduction, tax brackets and annual gift tax exclusion see big shifts amid high inflation.

  • By Emma Kerr,
  • U.S. News & World Report
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Taxpayers may see their tax liability cut in 2023 as the Internal Revenue Service adjusts the standard deduction and tax brackets for inflation.

Each year, the IRS makes inflation adjustments to key benchmarks. But this year, as inflation nears record highs, taxpayers may see a more significant impact, thanks to annual adjustments.

However, only certain items are inflation-sensitive – meaning those that aren’t could result in a taxpayer owing more come Tax Day. Meanwhile, taxpayers who experienced a bump in salary in step with inflation may not experience a significant change in liability.

“It will depend on the individual,” says Jeffrey Levine, a certified financial planner and chief planning officer at Buckingham Strategic Wealth. “For a lot of people, this will be a net tax cut, but overall, given the increase of inflation, I don’t think it’s going to be a net increase for them in purchasing power from one year to the next.”

These changes apply to the 2023 tax year, for which individuals file in April 2024.

2023 Tax Brackets Adjusted for Inflation

Tax brackets increased for 2023 – meaning taxpayers will see a portion of their income taxed at a lower rate.

Tax rate 37%, Taxable Income Brackets for Single Filers, $578,126 or more, Taxable Income Brackets for Married Filing Jointly, $693,751 or more

Tax rate 35%, Taxable Income Brackets for Single Filers, $231,251 to $578,125, Taxable Income Brackets for Married Filing Jointly, $462,501 to $693,750

Tax rate 32%, Taxable Income Brackets for Single Filers, $182,101 to $231,250, Taxable Income Brackets for Married Filing Jointly, $364,201 to $462,500

Tax rate 24%, Taxable Income Brackets for Single Filers, $95,376 to $182,100, Taxable Income Brackets for Married Filing Jointly, $190,751 to $364,200

Tax rate 22%, Taxable Income Brackets for Single Filers, $44,726 to $95,375, Taxable Income Brackets for Married Filing Jointly, $89,451 to $190,750

Tax rate 12%, Taxable Income Brackets for Single Filers, $11,001 to $44,725, Taxable Income Brackets for Married Filing Jointly, $22,001 to $89,450

Tax rate 10%, Taxable Income Brackets for Single Filers, $11,000 or less, Taxable Income Brackets for Married Filing Jointly, $22,000 or less

In combination with a higher standard deduction, increased tax brackets mean fewer taxpayers may need to file.

“You can get up to almost $600,000 as an individual before you hit the highest tax bracket and that is a big, big number,” says Adam Markowitz, enrolled agent and vice president of Howard L. Markowitz PA CPA. “It’s going to decrease the quantity of people who have to file. So many retirees have a relatively small pension and their Social Security. The higher that standard deduction goes, the more people will float into the category of not having to file anymore.”

Increase in Standard Deduction for 2023

The 2023 standard deduction increased to $13,850 from $12,950 for single filers and to $27,700 from $25,900 for married couples filing jointly. As a result, tax professionals are predicting even more taxpayers will opt to take the standard deduction instead of itemizing.

“Since 2019, approximately 9 out of 10 people have been using the standard deduction ever since the Tax Cuts and Jobs Act came through,” says Brennan Schlagbaum, a certified public accountant. “For those who itemize, this could potentially encourage more people to take the standard deduction.”

Increase in Annual Gift Exclusion and Estate Tax Exemption

Although the annual gift exclusion amount and estate tax exemption often only affects a small portion of Americans, this year’s inflation adjustment continues a significant upward trend. The estate tax exemption will increase to $12,920,000 and the annual gift tax exclusion will increase to $17,000 per person, per gift in 2023.

“It did strike me as being really high,” Markowitz says. “We’ve been at $15,000 for gifts for a while, and now all of the sudden we’ve gone from $16,000 to $17,000 quickly.”

The ultimate result of this increase may be a fewer total number of Americans subjected to estate tax next year.

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