In response to high inflation rates, the IRS made some of the biggest adjustments in history for tax year 2023. These changes affect individual tax brackets as well as some key tax deductions and credits for the taxes you will file in 2024. We go over the most significant changes below.

Standard Deduction

The standard deduction is a specific dollar amount that reduces your taxable income, and most taxpayers opt for the standard deduction over itemizing. The amount of your deduction is reliant upon your tax-filing status and whether someone can claim you as a dependent. (Those who are blind and/or over age 65 typically get a higher standard deduction.)

The 2023 standard deduction for taxes filed in 2024 will increase to $13,850 for single filers and married couples filing separately (up from $12,950 in 2022), $27,700 for joint filers (up from $25,900 in 2022), and $20,800 for heads of household (up from $19,400 in 2022).

Income Rate Brackets

For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly). The other tax brackets are:

• 35% for single taxpayers with incomes over $231,250 ($462,500 for married couples filing jointly
• 32% for single taxpayers with incomes over $182,100 ($364,200 for married couples filing jointly
• 24% for single taxpayers with incomes over $95,375 ($190,750 for married couples filing jointly)
• 22% for single taxpayers with incomes over $44,725 ($89,450 for married couples filing jointly
• 12% for single taxpayers with incomes over $11,000 ($22,000 for married couples filing jointly)
• 10% single taxpayers with incomes of $11,000 or less ($22,000 for marries couples filing jointly)

Retirement Plan Contribution Limits

For employees who contribute to a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, the contribution limit increases from $20,500 in 2022 to $22,500 in 2023.

Annual contributions to an IRA increase from $6,000 in 2022 to $6,500 in 2023, while the IRA catch-up contribution for individuals aged 50 and older stays unchanged at $1,000.

Gift Tax Exclusion

The annual exclusion for gifts increases from $16,000 in 2022 to $17,000 in 2023, which means that taxpayers can gift up to $17,000 per recipient without being liable for the gift tax.

Earned Income Tax Credit

For taxpayers who have three or more qualifying children, the EITC amount increases from $6,935 in 2022 to $7,430 in 2023.

Alternative Minimum Tax

In addition to their income tax, high-income earners are subject to an Alternative Minimum Tax (AMT). The AMT exemption amount for tax year 2023 is $81,300 (up from $75,900 in 2022) and begins to phase out at $578,150. The AMT exemption for joint filers is $126,500 (up from $118,100 in 2022) and begins to phase out at $1,156,300).

Health Flexible Savings Account

For tax year 2023, the dollar limitation for employee salary reductions for contributions to health FSAs increases to $3,050. For cafeteria plans that allow for the carryover of unused amounts, the maximum carryover amount is $610 (up $40 from 2022).