The IRS will update over 60 tax provisions for 2023 to counter rising costs due to inflation, including Standard Deductions, Tax Brackets, Flexible Spending Accounts, and various other credits and limits. With inflation rising over 8% year over year, many of these changes were required by law or necessary to help maintain the standard of living for many workers.
Standard Deduction
The Standard Deduction indicates the portion of income not subject to tax that can be used to reduce one’s tax bill. Standard Deductions will rise an average of 3.2% for 2022 and 6.9% for 2023.
| Filing Status | Standard Deduction 2021 | Standard Deduction 2022 | Standard Deduction 2023 |
|---|---|---|---|
| Individual or Married Filing Separately | $12,550 | $12,950 | $13,850 |
| Married Filing Jointly | $25,100 | $25,900 | $27,700 |
| Head of Household | $18,800 | $19,400 | $20,800 |
Tax Brackets
A comparison of income tax rates and ranges for 2022 and 2023 follows. The 2023 rates are effective Jan. 1 and will remain in place through year-end unless Congress passes new tax legislation. The average increase is 7%.
Single Filing Individual Return
| Tax Rate | 2022 Taxable Income | 2023 Taxable Income |
|---|---|---|
| 10% | $0 to $10,275 | $0 to $11,000 |
| 12% | Over $10,275 to $41,775 | Over $11,000 to $44,725 |
| 22% | Over $41,775 to $89,075 | Over $44,725 to $95,375 |
| 24% | Over $89,075 to $170,050 | Over $95,375 to $182,100 |
| 32% | Over $170,050 to $215,950 | Over $182,100 to $231,250 |
| 35% | Over $215,950 to $539,900 | Over $231,250 to $578,125 |
| 37% | Over $539,900 | Over $578,125 |
Married Filing Joint Returns
| Tax Rate | 2022 Taxable Income | 2023 Taxable Income |
|---|---|---|
| 10% | $0 to $20,550 | $0 to $22,000 |
| 12% | Over $20,550 to $83,550 | Over $22,000 to $89,450 |
| 22% | Over $83,550 to $178,150 | Over $89,450 to $190,750 |
| 24% | Over $178,150 to $340,100 | Over $190,750 to $364,200 |
| 32% | Over $340,100 to $431,900 | Over $364,200 to $462,500 |
| 35% | Over $431,900 to $647,850 | Over $462,500 to $693,750 |
| 37% | Over $647,850 | Over $693,750 |
Married Filing Separate Returns
| Tax Rate | 2022 Taxable Income | 2023 Taxable Income |
|---|---|---|
| 10% | $0 to $10,275 | $0 to $11,000 |
| 12% | Over $10,275 to $41,775 | Over $11,000 to $44,725 |
| 22% | Over $41,775 to $89,075 | Over $44,725 to $95,375 |
| 24% | Over $89,075 to $170,050 | Over $95,375 to $182,100 |
| 32% | Over $170,050 to $215,950 | Over $182,100 to $231,250 |
| 35% | Over $215,950 to $323,925 | Over $231,250 to $346,875 |
| 37% | Over $323,925 | Over $346,875 |
Head of Household
| Tax Rate | 2022 Taxable Income | 2023 Taxable Income |
|---|---|---|
| 10% | $0 to $14,650 | $0 to $15,700 |
| 12% | Over $14,650 to $55,900 | Over $15,700 to $59,850 |
| 22% | Over $55,900 to $89,050 | Over $59,850 to $95,350 |
| 24% | Over $89,050 to $170,050 | Over $95,350 to $182,100 |
| 32% | Over $170,050 to $215,950 | Over $182,100 to $231,250 |
| 35% | Over $215,950 to $539,900 | Over $231,250 to $578,100 |
| 37% | Over $539,900 | Over $578,100 |
Tax brackets show the percentage you’ll pay in taxes on each portion of your income. A common misconception is that the highest rate is what you’ll pay on all of your income, but that is incorrect.
Take a single taxpayer who earns $110,000. In 2023, they will take a standard deduction of $13,850, reducing her taxable income to $96,150.
They will pay:
- 10% tax on her first $11,000 of income, or $1,100 in taxes
- 12% tax on income from $11,000 to $44,735, or $4,048
- 22% tax on the portion of the income from $44,735 up to $95,375, or $11,140
- 24% tax on the portion of her income from $95,374 to their limit of taxable income, $96,150, or $775
Retirement Contributions
Contributions to 401k/403b/457/TSP retirement plans increased for 2022 and 2023. As a result, the maximum contribution for those under 50 will be $20,500 in 2022. That number rises to $22,500 in 2023.
The maximum contribution for those 50 or older is $27,000 in 2022 because of an additional $6,500 in catch-up contributions. For 2023, the catch-up contribution rose to $7,500, allowing a total of $30,000.
For 2022, the total contributions — from the employee and your employer — cannot exceed $61,000 or 100% of your compensation, whichever is less. For 2023, that number is $66,000 or 100% of your compensation.
Flexible Spending Accounts
Flexible spending accounts allow workers to put money, up to the limit permitted by the IRS, in an account that can be used to pay for medical expenses. Because the funds are taken from their accounts on a pre-tax basis, it offers tax savings for many workers.
The IRS limit for FSA contributions for 2023 is $3,050, an increase of about 7% from the current tax year’s threshold of $2,850. The maximum carryover for plans that allow it will be $610 in 2023, up from $570 in 2022.
Health Saving Accounts
Those with High-Deductable High Premium Medical Insurance can contribute to a Health Savings Account (HSA) and invest the funds, which enables the money in the HSA to grow tax-free. The IRS sets annual limits, which change periodically, on the amount you can contribute to an HSA. Here are the maximum amounts you can contribute to an HSA in 2023:
- For self-only coverage, contribution limits are $3,850 ($3,650 for 2022).
- For family coverage, contribution limits are $7,750 ($7,300 for 2022).
Earned Income Tax Credit
The maximum amount for households who claim the Earned Income Tax Credit (EITC) changed for 2022 and 2023. The table displays the maximum income limits to qualify for the EITC.
| Children or Relatives Claimed | Filing as Single, Head of Household, or Widowed (2022) | Filing as Married Filing Jointly (2022) | Filing as Single, Head of Household, or Widowed (2023) | Filing as Married Filing Jointly (2023) |
|---|---|---|---|---|
| Zero | $16,480 | $22,610 | $17,640 | $24,210 |
| One | $43,492 | $49,622 | $46,560 | $53,120 |
| Two | $49,399 | $55,529 | $52,918 | $59,478 |
| Three or more | $53,057 | $59,187 | $56,838 | $63,398 |
Child Tax Credit
Among the many government stimulus programs launched to help Americans weather the COVID-19 pandemic, one of the most effective was an expanded Child Tax Credit (CTC) that provided families with larger-than-normal payments.
That program, part of the 2021 American Rescue Plan Act, let families receive up to $3,600 per child under the age of 6 and $3,000 for children ages 6 to 17. However, those changes were made for only one year, and the payments will revert to $2,000 per child for 2022.
Estate Tax Credit
The IRS will exempt up to $12.92 million from the estate tax, up from $12.06 million for people who died in 2022 — an increase of 7.1%.
Gift Exclusion
People can also give up to $17,000 in gifts in 2023 without paying taxes on the money, up from $16,000 in 2022.
Transportation Credit
For 2023, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass is $300. This amount is up $20 from 2022.
How can we help?
Time Equipment Company’s integrated payroll system helps your organization become more efficient, improve productivity, and increase retention, all while staying compliant. For more information, contact Time Equipment Company at sales@timeequipment.com or 800-997-8463.
*This information simplifies complex Acts as it is understood by Time Equipment Company. It is not to be taken as legal advice. The regulations for this program are changing. For further information about the American Rescue Plan Act, please visit www.irs.gov.
