The IRS recently announced its annual inflation adjustment for 2023. At an increase of about 7%, the adjustment to income tax brackets and other tax thresholds is the largest seen in many years. While the change will result in reduced tax witholdings for many people starting in January, the adjustment is intended to offset “bracket creep.” Bracket creep occurs when people are pushed into higher income tax brackets not because of an increase in buying power, but due to inflation and a higher cost of living.
The new inflation adjustments are for tax year 2022, which will be filed by taxpayers in early 2023. You can review the new tax thresholds in the charts below.
To look back at 2022 federal income brackets, click here.
Income Tax Brackets (2023):
| Tax Bracket | Single |
Married Filing Jointly (MFJ) |
Head of Household | Estates & Trusts |
|---|---|---|---|---|
|
10% |
Up to $11,000 |
Up to $22,000 |
Up to $15,700 |
Up to $2,900 |
|
12% |
$11,000–$44,725 |
$22,000–$89,450 |
$15,700–$59,850 |
— |
|
22% |
$44,725–$95,375 |
$89,450–$190,750 |
$59,850–$95,350 |
— |
|
24% |
$95,375–$182,100 |
$190,750–$364,200 |
$95,350–$182,100 |
$2,900–$10,550 |
|
32% |
$182,100–$231,250 |
$364,200–$462,500 |
$182,500–$231,250 |
— |
|
35% |
$231,250–$578,125 |
$462,500–$693,750 |
$231,250–$578,100 |
$10,500–$14,450 |
|
37% |
Over $578,125 |
Over $693,750 |
Over $578,100 |
Over $14,450 |
*Dollar figures above reflect taxable income.
Standard Deduction:
| 2022 | 2023 | Net Change | |
|---|---|---|---|
|
Single |
$12,950 |
$13,850 |
$900 |
|
Married Filing Jointly (MFJ) |
$25,900 |
$27,700 |
$1,800 |
|
Head of Household |
$19,400 |
$20,800 |
$1,400 |
Estate Exemption Amount:
| 2022 | 2023 | Net Change | |
|---|---|---|---|
|
Basic Exclusion Amount |
$12,060,000 per person |
$12,920,000 per person |
$860,000 per person |
Based on the 2018 Tax Cuts and Jobs Act, the elevated estate tax exemption amounts will remain
in place through 2025. On Jan. 1, 2026, the exemption is set to revert to a level of $5 million, indexed for inflation.
Annual Exclusion Gifts:
| 2022 | 2023 | Net Change | |
|---|---|---|---|
|
Annual Gift Exclusion |
$16,000 |
$17,000 |
$1,000 |
|
Gifts to a Non-Citizen Spouse |
$164,000 |
$175,000 |
$11,000 |
Social Security Cost-of-Living Adjustment (COLA):
- COLA will increase 8.7% for 2023, which is the highest adjustment since the early 1980s.
To look back at past COLA information, click here. - How will this significant COLA change affect Social Security’s long-term finances?
According to Barron’s:
“‘Social Security faces serious financial challenges. The program’s trustees project that the Old-Age and Survivors Insurance Trust Fund will run out of money in 2034, after which payroll taxes will continue to fund 77% of benefits. Many of the program’s woes stem from demographics: There are fewer workers supporting more beneficiaries than ever before. Every year, the trustees publish a report on the state of the program, and it’s possible that the 2023 edition will show a projected acceleration of the depletion date by a year or two due to the high COLA,’ said Kathleen Romig, director of Social Security and Disability Policy at the Center on Budget and Policy Priorities.”
Contact any of the professionals at Private Wealth to discuss these changes and any
questions you have about how they may affect you.
Investment Advisory Services offered through Private Wealth Asset Management, 411 6th Avenue SE, Suite 360, Cedar Rapids, IA. 52401. 888-611-7926. Private Wealth Asset Management is sharing this report for informational purposes only and should not be used as the sole basis for financial decisions, nor be construed as investment advice designed to meet the particular needs of an individual’s situation. The information and opinions in this report are provided by third parties. We believe the sources to be reliable, but the accuracy and completeness can not be guaranteed. Contact your investment advisor to discuss your specific goals and objectives.
