IRS Watch: Inflation Adjustments for Tax Year 2023 Announced
On October 18, the IRS announced its annual inflation adjustments to some 60 tax provisions for tax year 2023. In addition to the normal new tax schedules, the list includes increases to specific exemptions and other adjustments intended to address current inflation issues.
Generally speaking, the adjustments apply to returns filed in 2024. Changes of top interest to most taxpayers include the following:
- Newly extended tax concessions for energy-efficient buildings; in addition, many provisions of these concessions are now indexed to inflation for automatic future adjustments.
- Increase in the standard deduction, both for married couples filing jointly, and taxpayers filing either as single, or married filing separately.
- Adjustment to marginal rates (all except the top rate, which remains unchanged at 37%).
- Increase in the Alternative Minimum Tax exemption amount.
- Increase in the Earned Income Tax Credit amount for qualifying taxpayers with three or more qualifying dependent children.
- Increase in qualified transportation and parking limitations.
- Increase in the limit for employee flexible health spending accounts.
- Adjustment to Medical Savings Accounts. The annual deductible range has been increased, and the maximum out-of-pocket expenses have likewise been increased for both self-only and family coverage.
- Increase in the Foreign Earned Income exclusion.
- Increase in the base exclusion amount for estates of decedents who die in 2023.
- Increase in the annual gift exclusion.
- Increase in the maximum credit permitted for adoptions.
In addition, several items that have been indexed to inflation in some previous years are no longer adjusted. For most taxpayers, these areas are treated identically to Tax Year 2022. These include:
- The personal exemption, which remains at zero, as a provision of the Tax Cuts and Jobs Act of 2017.
- No limitation on itemized deductions, again as a provision of the Tax Cuts and Jobs Act.
- No inflation adjustment for joint filers claiming the Lifetime Learning Credit. This has been unchanged since 2020.
To learn more about the IRS’s recent inflation adjustment announcements for tax year 2023 review their latest news release or contact your Weiss tax advisor to explore how these changes may impact your tax situation in 2023.
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