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On a yearly basis the Internal Revenue Service (IRS) adjusts more than 60 tax provisions for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power.\n to prevent what is called “bracket creepBracket creep occurs when inflation pushes taxpayers into higher income tax brackets or reduces the value of credits, deductions, and exemptions. Bracket creep results in an increase in income taxes without an increase in real income. Many tax provisions—both at the federal and state level—are adjusted for inflation.\n.” Bracket creep occurs when people are pushed into higher income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.\n brackets or have reduced value from credits and deductions due to inflation, instead of any increase in real income.
\nThe IRS used to use the Consumer Price Index (CPI) as a measure of inflation prior to 2018. However, with the Tax Cuts and Jobs Act of 2017 (TCJA), the IRS now uses the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly.
\nThe new inflation adjustments are for tax year 2023, for which taxpayers will file tax returns in early 2024. Note that the Tax Foundation is a 501(c)(3) educational nonprofit and cannot answer specific questions about your tax situation or assist in the tax filing process.
\n2023 Tax Brackets and Rates
\nThe income limits for all 2023 tax brackets and all filers will be adjusted for inflation and will be as follows (Table 1). There are seven federal income tax rates in 2023: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. The top marginal income tax rate of 37 percent will hit taxpayers with taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income.\n above $539,900 for single filers and above $693,750 for married couples filing jointly.
\n2023 Federal Income Tax Brackets and Rates for Single Filers, Married Couples Filing Jointly, and Heads of Households
\n\n| Tax Rate | For Single Filers | For Married Individuals Filing Joint Returns | For Heads of Households | \n
|---|---|---|---|
| 10% | $0 to $11,000 | $0 to $22,000 | $0 to $15,700 | \n
| 12% | $11,000 to $44,725 | $22,000 to $89,450 | $15,700 to $59,850 | \n
| 22% | $44,725 to $95,375 | $89,450 to $190,750 | $59,850 to $95,350 | \n
| 24% | $95,375 to $182,100 | $190,750 to $364,200 | $95,350 to $182,100 | \n
| 32% | $182,100 to $231,250 | $364,200 to $462,500 | $182,100 to $231,250 | \n
| 35% | $231,250 to $578,125 | $462,500 to $693,750 | $231,250 to $578,100 | \n
| 37% | $578,125 or more | $693,750 or more | $578,100 or more | \n
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\nLearn moreStandard DeductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes.\n and Personal Exemption
\nThe standard deduction will increase by $900 for single filers and by $1,800 for joint filers (Table 2).
\nThe personal exemption for 2023 remains at $0 (eliminating the personal exemption was part of the Tax Cuts and Jobs Act of 2017 (TCJA).
\n2023 Standard Deduction
\n\n| Filing Status | Deduction Amount | \n
|---|---|
| Single | $13,850 | \n
| Married Filing Jointly | $27,700 | \n
| Head of Household | $20,800 | \n
Alternative Minimum Tax (AMT)
\nThe Alternative Minimum Tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S.\n. This parallel tax income system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.
\nThe AMT uses an alternative definition of taxable income called Alternative Minimum Taxable Income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, this exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.
\nThe AMT exemption amount for 2023 is $81,300 for singles and $126,500 for married couples filing jointly (Table 3).
\n2023 Alternative Minimum Tax (AMT) Exemptions
\n\n| Filing Status | Exemption Amount | \n
|---|---|
| Unmarried Individuals | $81,300 | \n
| Married Filing Jointly | $126,500 | \n
In 2023, the 28 percent AMT rate applies to excess AMTI of $220,700 for all taxpayers ($110,350 for married couples filing separate returns).
\nAMT exemptions phase out at 25 cents per dollar earned once AMTI reaches $578,150 for single filers and $1,156,300 for married taxpayers filing jointly (Table 4).
\n2023 Alternative Minimum Tax (AMT) Exemption Phaseout Thresholds
\n\n| Filing Status | Threshold | \n
|---|---|
| Unmarried Individuals | $578,150 | \n
| Married Filing Jointly | $1,156,300 | \n
Earned Income Tax CreditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly.\n (EITC)
\nThe maximum Earned Income Tax Credit (EITC) in 2023 for single and joint filers is $560 if the filer has no children (Table 5). The maximum credit is $3,995 for one child, $6,604 for two children, and $7,430 for three or more children.
\n2023 Earned Income Tax Credit (EITC) Parameters
\n\n| Filing Status | No Children | One Child | Two Children | Three or More Children | \n|
|---|---|---|---|---|---|
| Single or Head of Household | Income at Max Credit | $7,840 | $11,750 | $16,510 | $16,510 | \n
| Maximum Credit | $600 | $3,995 | $6,604 | $7,430 | \n|
| Phaseout Begins | $9,800 | $21,560 | $21,560 | $21,560 | \n|
| Phaseout Ends (Credit Equals Zero) | 17,640 | 46,560 | 52,918 | 56,838 | \n|
| \n | |||||
| Married Filing Jointly | Income at Max Credit | $7,840 | $11,750 | $16,510 | $16,510 | \n
| Maximum Credit | $600 | $3,995 | $6,604 | $7,430 | \n|
| Phaseout Begins | $16,370 | $28,120 | $28,120 | $28,120 | \n|
| Phaseout Ends (Credit Equals Zero) | 24,210 | 53,120 | 59,478 | 63,398 | \n
Child Tax Credit
\nThe maximum Child Tax Credit is $2,000 per qualifying child and is not adjusted for inflation. The refundable portion of the Child Tax Credit is adjusted for inflation and will increase from $1,500 to $1,600 for 2023.
\nCapital Gains TaxA capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. These taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment.\n Rates & Brackets (Long-term Capital Gains)
\nLong-term capital gains are taxed use different brackets and rates than ordinary income (Table 6.)
\n2023 Capital Gains Tax Brackets
\n\n| For Unmarried Individuals, Taxable Income Over\t | For Married Individuals Filing Joint Returns, Taxable Income Over\t | For Heads of Households, Taxable Income Over | \n|
|---|---|---|---|
| 0% | $0 | $0 | $0 | \n
| 15% | $44,625\t | $89,250\t | $59,750 | \n
| 20% | $492,300\t | $553,850\t | $523,050 \n | \n
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Qualified Business Income Deduction (Sec. 199A)
\nThe Tax Cuts and Jobs Act of 2017 (TCJA) includes a 20 percent deduction for pass-through businesses. Limits on the deduction begin phasing in for taxpayers with income above $182,100 (or $364,200 for joint filers) in 2023 (Table 7).
\n2023 Qualified Business Income Deduction Thresholds
\n\n| Filing Status\t | Threshold | \n
|---|---|
| Unmarried Individuals\t | $182,100 \n | \n
| Married Filing Jointly\t | $364,200 \n | \n
Annual Exclusion for Gifts
\nIn 2023, the first $17,000 of gifts to any person are excluded from tax, up from $16,000. The exclusion is increased to $175,000 from $164,000 for gifts to spouses who are not citizens of the United States.
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