We are 100% virtual and online only. No office visits needed to work with us.

Learning Center

Inflation Reduces Income Tax

Article Highlights:

  • IRS Inflation Adjustments

  • Impact of 2023 Adjustments Will Be Felt in 2024 Tax Season

  • Standard Deduction

  • Tax Brackets

  • Other Tax Attributes

As the country emerges from the COVID pandemic and supply chain issues, along with the fallout from the war in Ukraine, the country has been experiencing high inflation rates that negatively impact the cost of everyday living, including food, gas for your vehicle, utilities and more.

But there is one shining light: tax-related inflation adjustments that will benefit most taxpayers. However, many media outlets have been touting the IRS’ recently released inflation adjustments for 2023 as if taxpayers will see the benefits this coming spring when they file their tax returns. What much of the hype fails to mention is that the 2023 increases will show up on your 2023 tax return which will be filed in 2024. So most people will have to wait until 2024 to see the approximately 7% inflation adjustment to tax benefits.

But there was an approximately 3% inflation adjustment for 2022 from which you will benefit when you file your 2022 tax return in early 2023.

If you are an employee, you may notice some reduction in the amount of income tax withheld from your wages starting in January, as the 2023 tax withholding calculation will take into account some of the items affected by the inflation adjustments, such as the increased standard deduction and widened tax rates.

Standard Deduction: The table illustrates the increases in the standard deduction for 2022 and 2023. As shown in the table, for taxpayers filing married joint returns the increase was $800 from 2021 to 2022 and $1,800 between 2022 and 2023. For a married couple filing jointly these amounts are not subject to income tax. Taking this a step further, if that married couple were in the 22% tax bracket their tax savings would be $176 (0.22 x $800) in 2022 and $396 (0.22 x $1,800) in 2023.

Basic Standard Deduction

Filing Status

2021

2022

2023

Married Joint

25,100

25,900

27,700

Head of Household

18,800

19,400

20,800

Single

12,550

12,950

13,850

Married Separate

12,550

12,950

13,850

Tax Brackets: Tax brackets are also affected by the inflation adjustments as illustrated in the tables below. For example, you will note that for an unmarried taxpayer using the single filing status for 2022 the table shows that when the individual’s taxable income reaches $89,076 the marginal tax rate increases from 22% to 24%. However, that transition between 22% and 24% occurs at $95,376 for 2023, or a difference of $6,300 that is taxed at 2% less than in 2022. Inflation adjustments are made annually for all the marginal rate brackets.

Individual Taxpayers (Single) Tax Rates

Marginal Rate

2022 Taxable Income

2023 Taxable Income

10.0%

$0 - 10,275

$0 - $11,000

12.0%

$10,276 - $41,775

$11,001 - $44,725

22.0%

$41,776 - $89,075

$44,726 - $95,375

24.0%

$89,076 - $170,050

$95,376 - $182,100

32.0%

$170,051 - $215,950

$182,101 - $231,250

35.0%

$215,951 - $539,900

$231,251 - $578,125

37.0%

$539,901 and above

$578,126 and above

Heads of Household Tax Rates

Marginal Rate

2022 Taxable Income

2023 Taxable Income

10.0%

$0 - $14,650

$0 - $15,700

12.0%

$14,651 - $55,900

$15,701 - $59,850

22.0%

$55,901 - $89,050

$59,851 - $95,350

24.0%

$89,051- $170,050

$95,351 - $182,100

32.0%

$170,051 - $215,950

$182,101 - $231,250

35.0%

$215,951 - $539,900

$231,251 - $578,100

37.0%

$539,901 and above

$578,101 and above

Married Individuals Filing Joint Returns and Surviving Spouses (Joint) Tax Rates

Marginal Rate

2022 Taxable Income

2023 Taxable Income

10.0%

$0 - $20,550

$0 - $20,550

12.0%

$20,551 - $83,550

$22,001 - $89,450

22.0%

$83,551 - $178,150

$89,451 - $190,750

24.0%

$178,151 - $340,100

$190,751 - $364,200

32.0%

$340,101 - $431,900

$364,201 - $462,500

35.0%

$431,901 - $647,850

$462,501 - $693,750

37.0%

$647,851 and above

$693,751 and above

Married Filing Separately Tax Rates

Marginal Rate

2022 Taxable Income

2023 Taxable Income

10.0%

$0 - $10,275

$0 - $11,000

12.0%

$10,276 - $41,775

$11,001 - $44,725

22.0%

$41,776 - $89,075

$44,726 - $95,375

24.0%

$89,076 - $170,050

$95,376 - $182,100

32.0%

$170,051 - $215,950

$182,101 - $231,250

35.0%

$170,051 - $215,950

$231,251 - $346,875

37.0%

$323,926 and above

$346,876 and above

Besides the standard deduction and tax brackets there are a large number of other tax attributes that are subject to inflation adjustment as well. Here are some examples.

Tax Attributes

2022

2023

Maximum Earned Income Tax Credit (with 3 or more children)

$6,936

$7,430

Adoption Credit

$14,890

$15,950

Maximum Foreign Earned Income Exclusion

$112,000

$120,000

Annual Gift Tax Exclusion

$16,000

$17,000

As of this writing, the IRS has not yet released the 2023 maximum contributions to IRAs, 401(k)s and other retirement plans. It is anticipated that these amounts will also increase substantially due to the adjustment for inflation.

Please contact this office if you have any questions.

Share this article...

Want tax & accounting tips and insights?

Sign up for our newsletter! Each month, we will send you a roundup of our latest blog content covering the tax and accounting tips & insights you need to know.

I confirm this is a service inquiry and not an advertising message or solicitation. By clicking “Submit”, I acknowledge and agree to the creation of an account and to the and .

Welcome Welcome message
Would you like to schedule an Appointment
Please fill out the form and our team will get back to you shortly The form was sent successfully