WiserAdvisor – Blog

Main Menu

  • Main
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Investment Management
  • More
    • Personal Finance
    • Estate Planning
logo
I Want to Take Charge.
HELP ME FIND AND COMPARE TOP VETTED FINANCIAL ADVISORS IN MY AREA.

FINRA/SEC Registered Advisors

  Your Information is Safe and Secure

WiserAdvisor – Blog

  • Main
  • Financial Advisor Guide
  • Financial Planning
  • Retirement Planning
  • Education Planning
  • Investment Management
  • More
    • Personal Finance
    • Estate Planning
Financial Planning
Home›Financial Planning›New 2023 Tax Brackets and Deductions

New 2023 Tax Brackets and Deductions

By WiserAdvisor Insights
November 7, 2022
2569
0
2023 Income Tax Brackets

The federal income tax is levied by the U.S. government on the income earned by individuals. It is a mandatory tax that you pay to the government every year. Evading tax is a serious legal offense punishable by law. Therefore, it is important to stay up to date with the changing tax laws, rates, and dates for filing your income tax return.

The income bracket that you fall into can differ based on your income, age, and filing status. The Internal Revenue Service (IRS) announces the federal income tax brackets every year. The rates are determined on the basis of inflation, which is why they may be different each year. In addition to the tax brackets, the IRS also announces deductions and allowances that help you lower your tax liability for the year. Consider reaching out to a professional financial advisor who can help you lower your taxability for the year.

Keep reading to find out more about the 2023 tax brackets in the United States.

The tax system explained

The U.S. follows a progressive tax system, implying that you pay a higher income tax as your income increases. The more you earn, the more income tax is levied on your income. The income tax brackets progressively increase. However, in a progressive tax system, you only pay the higher income tax rate for the portion exceeding the previous limit and not the whole amount. For instance, if you fall in the tax bracket of $11,001 to $44,725 that levies a tax rate of 12%, you will not pay a 12% tax on your total income. Instead, you will be charged 10%, which is the previous tax bracket on the amount of up to $11,001. Further, you will pay 12% on the amount over $11,001.

This will be clearer from the tables shared in the sections below.

In addition to this, there are four filing categories that you can choose from. The tax levied can differ for all of these. Therefore, it is important to understand their differences and apply them accordingly.

  1. Single filers
  2. Head of household
  3. Married filers filing jointly
  4. Married filers filing separately

What are the 2023 tax brackets?

The IRS adjusts the tax brackets according to inflation. Since inflation has been at a record high this year, taxpayers will see a tax cut in 2023. The new tax brackets will be applied to the 2023 tax year. This refers to the tax return that taxpayers will file in April 2024.

Taxable federal income tax brackets for single filers Tax rate
$11,000 or less 10%
$11,001 to $44,725 12%
$44,726 to $95,375 22%
$95,376 to $182,100 24%
$182,101 to $231,250 32%
$231,251 to $578,125 35%
$578,126 or more 37%

 

Taxable federal income tax brackets for married filing jointly Tax rate
$22,000 or less 10%
$22,001 to $89,450 12%
$89,451 to $190,750 22%
$190,751 to $364,200 24%
$364,201 to $462,500 32%
$462,501 to $693,750 35%
$693,751 or more 37%

 

Taxable federal income tax brackets for heads of households Tax rate
$0 to $15,700 10%
$15,700 to $59,850 12%
$59,850 to $95,350 22%
$95,350 to $182,100 24%
$182,100 to $231,250 32%
$231,250 to $578,100 35%
$578,100 or more 37%

 

As you can see, the income thresholds have risen since 2022. The lowest income threshold in 2022 was $10,275, whereas, in 2023, it has been set at $11,000. The maximum income threshold has also been increased from $539,900 to $578,125 in 2023.

However, while the tax liabilities have been cut, the power of purchasing has considerably dropped for most people due to inflation. This means that your overall savings may still not be as much as you hope, and it may be advised to boost your savings rate nevertheless. Investing and savings in inflation-beating instruments are strongly recommended to counter the effect of inflation and to secure your future financially.

Increase in Standard Deduction for 2023

Apart from federal income tax brackets, the standard deduction will also be increased in 2023. The standard dedication refers to the amount of tax deduction you can remove from your income before paying tax. This is a straight tax cut that lowers your taxable income. The standard deduction has been decreased for all taxpayer categories, as shared below:

Filing status Exemption amount
Single taxpayers $13,850
Married taxpayers filing jointly $27,700
Head of household $20,800

Alternative Minimum Tax (AMT)

The Alternative Minimum Tax (AMT) is a special tax that is only levied on high-income individuals. It was introduced in the 1960s. According to the federal income tax rules, high-income individuals have to calculate their tax dues twice – once under the normal tax system and once as per the AMT system. Based on the results of both tax systems, taxpayers then pay tax as per the higher of the two.

The AMT system uses the Alternative Minimum Taxable Income (AMTI), which is different from the usual taxable income. The AMTI is used to differentiate low and middle-income individuals from high-income taxpayers.

The AMT exemption amount for 2023 is as follows:

Filing status Exemption amount
Single taxpayers $81,300
Married taxpayers filing jointly $126,500

 

Further, the AMT will be charged at two rates for 2023:

  • 26%
  • 28%

The 2023 AMT exemption phaseout thresholds are as follows:

Filing status Threshold
Single taxpayers $578,150
Married taxpayers filing jointly $1,156,300

 

The AMT exemption will phase out at 25 cents per dollar.

Increase in annual gift exclusion

The annual gift exemption is applied to any financial asset given as a gift, including cash or a physical or virtual asset. This can include a home, investments, stock holdings, etc. However, for the transaction to qualify as a gift, you must not receive anything in return for your gift that is equivalent to its fair market value. The annual gift tax exclusion has been increased to $17,000 per person in 2023. In 2022, this was $16,000. Further, the gift tax exclusion has been increased from $164,000 to $175,000 for gifts given to a spouse who is not a citizen of the country.

Estate tax exemption

Typically, when an individual dies, the estate is taxed by the federal government. The estate tax exemption refers to the limit that is exempt from any tax. In 2023, the estate tax exemption will also increase to $12,920,000, from $12,060,000 in 2022.

Amounts exceeding the estate tax exemption will be taxed as follows:

Rate Taxable amount on the amount of estate exceeding estate tax exemption
18% $0 to $10,000
20% $10,001 to $20,000
22% $20,001 to $40,000
24% $40,001 to $60,000
26% $60,001 to $80,000
28% $80,001 to $100,000
30% $100,001 to $150,000
32% $150,001 to $250,000
34% $250,001 to $500,000
37% $500,001 to $750,000
39% $750,001 to $1 million
40% Over $1 million

Earned Income Tax Credit (EITC)

EITC is a tax credit for low and moderate-income groups. It is a refundable credit that these income groups can claim on their income tax return. The minimum income earned in a year to claim EITC is only $1. However, the income cannot be from unemployment benefits or pensions. To claim EITC, you also need to have an investment income of $10,000 or less.

The EITC is decided on the basis of whether or not the taxpayer has any children. For 2023, here is the EITC available for different categories:

Single taxpayers

No children One child Two children Three or more children
Income at max credit $7,840 $11,750 $16,510 $16,510
Maximum credit $600 $3,995 $6,604 $7,430
Phaseout begins $9,800 $21,560 $21,560 $21,560
Phaseout ends (credit equals zero) 17,640 46,560 52,918 56,838

Married taxpayers filing jointly

No children One child Two children Three or more children
Income at max credit $7,840 $11,750 $16,510 $16,510
Maximum credit $600 $3,995 $6,604 $7,430
Phase out begins $16,370 $28,120 $28,120 $28,120
Phaseout ends (credit equals zero) 24,210 53,120 59,478 63,398

Head of household taxpayers

No children One child Two children Three or more children
Income at max credit $7,840 $11,750 $16,510 $16,510
Maximum credit $600 $3,995 $6,604 $7,430
Phase out begins $9,800 $21,560 $21,560 $21,560
Phaseout ends (credit equals zero) 17,640 46,560 52,918 56,838

Child tax credit

The child tax credit is a tax break that is offered to parents for qualifying children. The refundable portion of the child tax credit will be increased from $1,500 in 2022 to $1,600 in 2023.

Long-term capital gains tax rates and brackets

Long-term capital gains are taxed on stocks or other investments held for more than 24 months. Here are the tax brackets for the same in 2023:

Single taxpayers

2023 tax brackets Tax rate
Up to $44,625 0%
$44,625 to $492,300 15%
Over $492,300 20%

Married taxpayers filing jointly

2023 tax brackets Tax rate
Up to $89,250 0%
$89,250 to $553,850 15%
Over $553,850 20%

Head of household taxpayers

2023 tax brackets  Tax rate
Up to $59,750 0%
$59,750 to $523,050 15%
Over $523,050 20%

Qualified business income deduction under Section 199A

Qualified business income deduction is applicable to pass-through businesses. These businesses refer to a sole proprietorship, partnership, or an S corporation that is not subject to corporate income taxes. Such types of companies file their income tax on the basis of the individual income tax returns of the owners. Hence, they pay individual income tax rates.

Here are the 2023 qualified business income deduction thresholds:

Filing Status Threshold
Single taxpayers $182,500
Married taxpayers filing jointly $364,200

 

Additionally, there are some other highlights too:

  • The maximum tax rate is 37%, and the lowest is 10%, just like last year.
  • The personal exemption is 0 for the year 2023.
  • The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking has been increased to $300 for 2023 from $220 in 2022.
  • There is no limitation on itemized deductions in 2023, like in the previous five years.
  • The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements has been increased to $3,050. The maximum amount that taxpayers can carry over is $610 for cafeteria plans in 2023.
  • The foreign earned income exclusion is increased to $120,000 from $112,000 in 2022.
  • The maximum credit limit for adopting a child in 2023 is increased to $15,950 from $14,890 for 2022.
  • Taxpayers with a self-only cover in a Medical Savings Account can claim an annual deduction of $2,650 in 2023. The maximum limit for the same is $3,950. The maximum limit for out-of-pocket expenses for such coverage is $5,300 for 2023.
  • Taxpayers with a family cover in a Medical Savings Account can claim an annual deduction of $5,300 in 2023, up from $4,950 in 2022. The maximum limit for the same is $7,900. The maximum limit for out-of-pocket expenses for such coverage is $9,650 for 2023.

To conclude

The new federal income tax brackets have been a welcome relief given the rising rates of inflation and the economic uncertainty surrounding them. However, their actual impact is still being contemplated as people continue to suffer in the aftermath of inflation. Nevertheless, it is important to account for these changes and make adjustments to your tax plans for the tax year 2023.

You can use a tax calculator  to compute your tax liabilities or consult a professional financial advisor in your area. Use WiserAdvisor’s free advisor match service to find 1-3 highly qualified and vetted financial advisors that are suited to meet your financial requirements. All you need to do is answer a few simple questions about yourself and the match tool will find advisors that match your financial needs.

Previous Article

Is Financial Planning Different for Dual-Income Families?

Next Article

9 Crucial Questions Every Investor Needs to ...

WiserAdvisor Insights

WiserAdvisor Insights

A team of dedicated writers, editors and finance specialists sharing their insights, expertise and industry knowledge to help individuals live their best financial life and reach their personal financial goals. We believe that there is no place for fear in anyone's financial future and that each individual should have easy access to credible financial advice.

Related articles More from author

  • financial life planning
    Financial Planning

    Importance of Focus for A Successful Financial Life

    March 2, 2020
    By WiserAdvisor Insights
  • Realistic Financial Plan
    Financial Planning

    7 Tips to Track your Spending for Creating a Realistic Financial Plan

    October 12, 2020
    By WiserAdvisor Insights
  • money
    Financial Planning

    8 Investment Mistakes That You Must Steer Clear Of

    October 17, 2019
    By WiserAdvisor Insights
  • End-of-the-Year Personal Finance Checklist for 2021
    Financial Planning

    End-of-the-Year Personal Finance Checklist for 2021

    November 23, 2021
    By Jonathan Dash
  • Prepare Financially for 2023
    Financial Planning

    The Best Ways To Start Financially Preparing for 2023

    December 12, 2022
    By WiserAdvisor Insights
  • Money Habits
    Financial Planning

    Are You Taking Note of These Frugal and Smart Money Habits of The Rich?

    September 4, 2019
    By WiserAdvisor Insights

Leave a reply Cancel reply

You might be interested

  • Retirement-fund
    Retirement Planning

    All About Withdrawing Retirement Funds

  • Economic-Bubble
    Uncategorized

    Economic Bubbles: Everything you should know about them

  • COVID-19 Pandemic
    Financial Planning

    COVID-19 Pandemic Implications Highlight Significance of Financial Planning

Don't miss out! Get our Helpful Financial Tips Newsletter

  • Popular Posts

  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • Financial-Professional

    How to prepare for a meeting with your Financial Advisor

    By WiserAdvisor Insights
    July 8, 2019
  • retirement-accounts

    Choosing the Best Retirement Accounts

    By WiserAdvisor Insights
    July 8, 2019
  • Retirement-Planning

    Retirement Planning checklist

    By WiserAdvisor Insights
    July 8, 2019
  • Why investing for goals is the right way of investing

    Why Investing for goals is the right way of Investing?

    By WiserAdvisor Insights
    July 16, 2019
  • Portfolio diversification

    5 Dangers of Over-Diversifying your Portfolio

    By WiserAdvisor Insights
    July 26, 2019
  • Financial Planning for couple

    The Complete Guide on Financial Planning for Couples

    By WiserAdvisor Insights
    August 1, 2019
  • Roth-IRA

    Can You Open a Roth IRA After You Turn 60?

    By Jonathan Dash
    December 19, 2021

Categories

  • Business Finance (2)
  • Education Planning (29)
  • Estate Planning (20)
  • Financial Advisor (1)
  • Financial Advisor Guide (31)
  • Financial Planning (122)
  • Investment Management (68)
  • Personal Finance (11)
  • Portfolio Management (1)
  • Retirement (18)
  • Retirement Healthcare (1)
  • Retirement Planning (79)
  • Retirement Plans (1)
  • Uncategorized (2)

The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.

WiserAdvisor is America’s oldest and largest independent network of screened financial advisors. We make it easy and convenient for consumers to find and connect with advisors in their area. We have successfully helped over 100,000+ individuals find their best financial advisor since 1998 with no match fees, no commitments, no obligation, and complete confidentiality. WiserAdvisor has been featured in The Washington Post, The Washington Journal, ABC, CBS, Yahoo and has been seen in numerous other leading financial news and information websites.

Follow Us

  • Recent

  • Popular

  • What Is Goal Based Investing?

    What is Goal-Based Investing?

    By WiserAdvisor Insights
    March 30, 2023
  • What Is Roth 401(k) Match?

    What is Roth 401(k) Matching, And How Does It Work?

    By Jonathan Dash
    March 22, 2023
  • How To Use BrokerCheck To Evaluate A Financial Advisor’s Credentials

    By WiserAdvisor Insights
    March 16, 2023
  • The benefits of working with a financial advisor - WA

    The benefits of working with a Financial Advisor

    By WiserAdvisor Insights
    July 16, 2019
  • Financial-Professional

    How to prepare for a meeting with your Financial Advisor

    By WiserAdvisor Insights
    July 8, 2019
  • retirement-accounts

    Choosing the Best Retirement Accounts

    By WiserAdvisor Insights
    July 8, 2019

Contact Us

Corporate Headquarters

12150 Monument Drive, Suite 700
Fairfax, VA, 22033

Business Hours

8:30 AM – 5:00 PM EST (Monday – Friday)

Email Address

wa.assistance@wiseradvisor.com

Phone Number

(703) 651-2060

Fax Number

(703) 259-4487

  • Privacy Policy
  • Terms & Conditions
© Copyright 2022 WiserAdvisor.com. All Rights Reserved.