The IRS Has Released Tax Rate Schedules for the Fiscal Year 2023

The Internal Revenue Service revealed in October the yearly inflation adjustments for more than 60 tax provisions, including tax rate schedules and other tax modifications, for the tax year 2023. Revenue Procedure 2022-38 describes these annual modifications in detail.

New in 2023

The Inflation Reduction Act extended certain energy-related tax incentives and adjusted the energy-efficient commercial buildings deduction for inflation beginning in the fiscal year 2023.

The applicable dollar value used to determine the maximum allowance of the deduction for the tax year 2023 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 be reduced by a percentage greater than 25%.

The appropriate dollar value used to compute the higher deduction amount for a particular property is $2.68 multiplied by $0.11 for each percentage point by which the total annual energy and power costs for the building are certified to be reduced by a percentage of more than 25%.

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Highlights of Revenue Procedure 2022-38 Changes

The modifications for the tax year 2023 outlined below normally apply to tax returns filed in 2024.

The following monetary numbers are the most important tax items for the tax year 2023 for the majority of taxpayers:

For the tax year 2023, the standard deduction for married couples filing jointly climbs to $27,700, up $1,800 from the previous year.

  • The standard deduction for single taxpayers and married persons filing separately increases by $900 to $13,850 in 2023, and the standard deduction for heads of households increases by $1,400 to $20,800 in 2023, up from $20,800 in 2022.
  • Marginal Rates: The maximum tax rate remains 37% for individual single taxpayers earning more than $578,125 ($693,750 for married couples filing jointly) in the tax year 2023.

The other rates are as follows:

  • 35% on earnings in excess of $231,250 ($462,500 for married couples filing jointly);
  • 32% on earnings in excess of $182,100 ($364,200 for married couples filing jointly);
  • 24% on earnings in excess of $95,375 ($190,750 for married couples filing jointly);
  • 22% on earnings in excess of $44,725 ($89,450 for married couples filing jointly);
  • 12% on earnings in excess of $11,000 ($22,000 for married couples filing jointly).

The lowest rate is 10% for single taxpayers earning $11,000 or less ($22,000 for married couples filing jointly).

  • The AMT exemption level for the tax year 2023 is $81,300, with the exemption beginning to phase out at $578,150 ($126,500 for married couples filing jointly, with the exemption beginning to phase out at $1,156,300). The exemption level in 2022 was $75,900, with the exemption beginning to phase out at $539,900 ($118,100 for married couples filing jointly, with the exemption beginning to phase out at $1,079,800).
  • The maximum Earned Income Tax Credit amount for qualifying taxpayers with three or more qualifying children is $7,430 in the tax year 2023, up from $6,935 in the tax year 2022. The revenue procedure includes a table that shows the maximum EITC amount for each category, as well as income criteria and phase-outs.
  • The monthly limits for the eligible transportation fringe benefit plus the monthly limitation for qualified parking increases to $300 in the tax year 2023, up $20 from the limit in 2022.
  • The dollar ceiling for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050 for taxable years beginning in 2023. The maximum carryover amount for cafeteria programs that allow the carryover of unused amounts is $610, an increase of $40 from taxable years beginning in 2022.
  • For the tax year 2023, individuals with self-only coverage in a Medical Savings Account must have an annual deductible of at least $2,650, up $200 from the tax year 2022, but no more than $3,950, up $250 from the tax year 2022. The maximum out-of-pocket expense for self-only coverage is $5,300, up $350 from 2022. For the tax year 2023, the yearly deductible for family coverage must be less than $5,300, up from $4,950 in 2022; however, the deductible cannot be more than $7,900, up $500 from the limit in 2022. The out-of-pocket expense maximum for family coverage is $9,650 for the tax year 2023, up $600 from the tax year 2022.
  • The overseas earned income exclusion for the tax year 2023 is $120,000, up from $112,000 in the tax year 2022.
  • The basic exclusion amount for estates of decedents who died in 2023 is $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.
  • For the calendar year 2023, the yearly exclusion for gifts rises to $17,000, up from $16,000 in calendar year 2022.
  • The maximum credit for adoptions for the tax year 2023 is up to $15,950 for eligible adoption expenses, up from $14,890 in 2022.

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Items That are Unaffected by Indexing

Certain items that were previously indexed for inflation are no longer modified by statute.

  • The personal exemption remains zero for the tax year 2023, as it was in 2022; the abolition of the personal exemption was a provision of the Tax Cuts and Jobs Act.
  • The Tax Cuts and Jobs Act eliminated the cap on itemized deductions in 2023, as well as in 2022, 2021, 2020, 2019, and 2018.
  • 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 25A(d)(2) is not adjusted for inflation. For taxpayers with a modified adjusted gross income of more than $80,000 ($160,000 for combined returns), the Lifetime Learning Credit is phased out.

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