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Individual Tax

Key 2023 Individual Tax Items Calculated By Thomson Reuters Checkpoint Based On Inflation Data

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

The income tax brackets, standard deduction amounts, and many other tax items are adjusted annually for cost-of-living increases. These adjustments reflect the average chained Consumer Price Index (CPI) for all-urban customers (C-CPI-U) for the 12-month period ending the previous August 31. The August 2022 CPI summary has been released by the Labor Department. Using the chained CPI for August 2022 (and the preceding 11 months), Thomson Reuters Checkpoint has calculated the 2023 indexed amounts.

Tax rate schedules.

The tax rate schedules for 2023 will be as follows.

For married individuals filing joint returns and surviving spouses:

If taxable income is under $22,000; the tax is 10% of taxable income

If taxable income is over $22,000 but not over $89,450; the tax is $2,200.00 plus 12% of the amount over $22,000

If taxable income is over $89,450 but not over $190,750; the tax is $10,294.00 plus 22% of the amount over $89,450

If taxable income is over $190,750 but not over $364,200; the tax is $32,580.00 plus 24% of the amount over $190,750

If taxable income is over $364,200 but not over $462,500; the tax is $74,208.00 plus 32% of the amount over $364,200

If taxable income is over $462,500 but not over $693,750; the tax is $105,664.00 plus 35% of the amount over $462,500

If taxable income is over $693,750; the tax is $186,601.50 plus 37% of the amount over $693,750

For single individuals (other than heads of households and surviving spouses):

If taxable income is not over $11,000; the tax is 10% of taxable income

If taxable income is over $11,000 but not over $44,725; the tax is $1,100.00 plus 12% of the amount over $11,000

If taxable income is over $44,725 but not over $95,375; the tax is $5,147.00

plus 22% of the amount over $44,725

If taxable income is over $95,375 but not over $182,100; the tax is $16,290.00 plus 24% of the amount over $95,375

If taxable income is over $182,100 but not over $231,250; the tax is $37,104.00 plus 32% of the amount over $182,100

If taxable income is over $231,250 but not over $578,125; the tax is $52,832.00 plus 35% of the amount over $231,250

If taxable income is over $578,125; the tax is $174,238.25 plus 37% of the amount over $578,125

For heads of household:

If taxable income is not over $15,700: the tax is 10% of taxable income

If taxable income is over $15,700 but not over $59,850; the tax is $1,570.00 plus 12% of the excess over $15,700

If taxable income is over $59,850 but not over $95,350; the tax is $6,868.00 plus 22% of the excess over $59,850

If taxable income is over $95,350 but not over $182,100; the tax is $14,678.00 plus 24% of the excess over $95,350

If taxable income is over $182,100 but not over $231,250; the tax is $35,498.00 plus 32% of the excess over $182,100

If taxable income is over $231,250 but not over $578,100; the tax is $51,226.00 plus 35% of the excess over $231,250

If taxable income is over $578,100; the tax is $172,623.50 plus 37% of the excess over $578,100

For marrieds filing separate returns:

If taxable income is not over $11,000; the tax is 10% of taxable income

If taxable income is over $11,000 but not over $44,725 the tax is $1,100.00 plus 12% of the excess over $11,000

If taxable income is over $44,725 but not over $95,375; the tax is $5,147.00 plus 22% of the excess over $44,725

If taxable income is over $95,37595,375 but not over $182,100; the tax is $16,290.00 plus 24% of the excess over $95,375

If taxable income is over $182,100 but not over $231,250; the tax is $37,104.00 plus 32% of the excess over $182,100

If taxable income is over $231,250 but not over $346,875; the tax is $52,832.00 plus 35% of the excess over $231,250

If taxable income is over $346,875; the tax is $93,300.75 plus 37% of the excess over $346,875

For estates and trusts:

If taxable income is less than $2,900; the tax is 10% of taxable income

If taxable income is over $2,900 but not over $10,550; the tax is $290.00 plus 24% of the excess over $2,900

If taxable income is over $10,550 but not over $14,450; the tax is $2,126.00 plus 35% of the excess over $10,550

If taxable income is over $14,450; the tax is $3,491.00, plus 37% of the excess over $14,450

Standard deductions.

The basic standard deduction for 2023 will be:

Joint return or surviving spouse $27,700 ($25,900 for 2022)

Single (not head of household or surviving spouse) $13,850 ($12,950 for 2022)

Head of household $20,800 ($19,400 for 2022)

Married filing separate returns $13,850 ($12,950 for 2022)

Dependents.

For an individual who can be claimed as a dependent on another’s return, the basic standard deduction for 2023 will be $1,250 ($1,150 in 2022), or $400 ($400 in 2022) plus the individual’s earned income, whichever is greater. However, the standard deduction may not exceed the regular standard deduction for that individual.

Older and blind taxpayers.

For 2023, the additional standard deduction for married taxpayers 65 or over or blind will be $1,500 ($1,400 in 2022). For a single taxpayer or head of household who is 65 or over or blind, the additional standard deduction for 2023 will be $1,850 ($1,750 in 2022).

Exemption amount.

While the dependency exemption deduction under Code Sec. 151 is reduced to zero from 2018 through 2025, this reduction isn’t taken into account for other purposes of the Code, such as who is a qualifying relative for family credit purposes, and eligibility for head-of-household status. For 2023, this amount is $4,700 ($4,400 in 2022).

Capital gains.

For 2023, the capital gains tax rates will be as follows:

The 0% capital gains rate applies to adjusted net capital gain of up to:

… Joint returns and surviving spouses-$89,250 ($83,350 in 2022)

… Single filers and married taxpayers filing separately-$44,625 ($41,675 in 2022)

… Heads of household-$59,750 ($55,800 in 2022)

… Estates and trusts-$3,000 ($2,800 in 2022)

The 15% capital gains tax rate applies to adjusted net capital gain over the amount subject to the 0% rate, and up to:

… Joint returns and surviving spouses-$553,850 ($517,200 in 2022)

… Married taxpayers filing separately-$276,925 ($258,600 in 2022)

… Heads of household-$523,050 ($488,500 in 2022)

… Single filers-$492,300 ($459,750 in 2022)

… Estates and trusts-$14,650 ($13,700 in 2022)

The 20% capital gains tax rate applies to adjusted net capital gain over the above 15% maximum amounts.

Kiddie tax.

The exemption from the kiddie tax for 2023 will be $2,500 ($2,300 in 2022). A parent will be able to elect to include a child’s income on the parent’s return for 2023 if the child’s income is more than $1,250 and less than $12,500 ($1,150 and $11,500 in 2022).

AMT exemption for child subject to kiddie tax.

Note that no special exemption amount applies through tax year 2025. (Code Sec 55(d)(4)(A)(iii) and Code Sec 59(j))

AMT figures.

For 2023, the AMT exemption amounts will be:

… Joint returns or surviving spouses-$126,500 ($118,100 in 2022)

… Unmarried individuals (other than surviving spouses)-$81,300 ($75,900 in 2022)

… Married individuals filing separate returns-$63,250 ($59,050 in 2022)

… Estates and trusts-$28,400 ($26,500 in 2022)

For 2023, the excess taxable income above which the 28% tax rate applies will be $110,350 for married persons filing separately ($103,050 in 2022), and $220,700 for joint returns, unmarried individuals and estates and trusts ($206,100 in 2022).

For 2023, the amounts used under Code Sec. 55(d)(3) to determine the phaseout of the AMT exemption amounts will be:

… Joint returns or surviving spouses-$1,156,300 ($1,079,800 in 2022)

… Unmarried individuals (other than surviving spouses)-$578,100 ($539,900 in 2022)

… Married filing separate returns-$578,150 ($539,900 in 2022)

… Estates and trusts-$94,600 ($88,300 in 2022)

Income-based limitations on Sec. 199A qualified business income deduction.

For 2023, taxpayers with taxable income above $182,100 for single and head of household returns, $364,200 for joint filers, and $182,100 for married filing separate returns are subject to certain limitations on the Code Sec. 199A deduction. The 2022 amounts were $170,050, $340,100, and $170,050.

Excess business loss disallowance rule.

Under Code Sec. 461(l), an excess business loss for the tax year is the excess of aggregate deductions of the taxpayer attributable to the taxpayer’s trades and businesses, over the sum of aggregate gross income or gain of the taxpayer plus a threshold amount. For 2023, the threshold amount is $578,000 for married individuals filing jointly ($540,000 in 2022) and $289,000 for other individuals ($270,000 in 2022).

Educator expenses.

For 2023, eligible elementary and secondary school teachers can claim an above-the line deduction for up to $300 per year of expenses paid for books and certain other supplies used in the classroom ($300 in 2022).

Interest exclusion for higher education.

For 2023, the phase-out for excluding interest on U.S. savings bonds redeemed to pay qualified higher education expenses will begin at modified adjusted gross income (MAGI) above $91,850 ($137,800 on a joint return). For 2022, the corresponding figures were $85,800 and $128,650.

Qualified transportation fringe benefits.

For 2023, an employee will be able to exclude up to $300 ($280 in 2022) a month for qualified parking expenses, and up to $300 a month ($280 in 2022) of the combined value of transit passes and transportation in a commuter highway vehicle.

Refundable child credit.

The child credit is refundable, subject to the limit described below, to the extent of the greater of:

… 15% of earned income above $2,500, or

… for taxpayers with three or more qualifying children, the excess of the taxpayer’s social security taxes for the tax year over his or her earned income tax credit for the year. (Code Sec. 24(d))

The refundable portion of the child tax credit for any qualifying child can’t exceed $1,600 for 2023.

Earned income tax credit.

For 2023, the maximum amount of earned income on which the earned income tax credit will be computed is $7,840 for taxpayers with no qualifying children, $11,750 for taxpayers with one qualifying child, and $16,510 for taxpayers with two or more qualifying children.

For 2023, the phaseout of the allowable earned income tax credit will begin at $16,370 for joint filers with no qualifying children ($9,800 for others with no qualifying children), and at $28,120 for joint filers with one or more qualifying children ($21,560 for others with one or more qualifying children).

Observation: Taxpayers must use IRS tables to determine the amount of their earned income tax credit. While these tables are based on the inflation-adjusted figures set out above, because the credit under the tables is the same for everyone within a $50 range, there may be slight differences between the credit under the tables and the credit the taxpayer would determine using those inflation-adjusted figures.

The amount of disqualified income (generally investment income) a taxpayer may have before losing the entire earned income tax credit is $11,000 for 2023.

Adoption credit.

For 2023, the credit allowed for an adoption of a child with special needs will be $15,950 ($14,890 in 2022). The maximum credit allowed for other adoptions will be the amount of qualified adoption expenses up to $15,950 ($14,890 in 2022).

For 2023, the credit will begin to phase out for taxpayers with MAGI in excess of $239,230 ($223,410 in 2022). The phaseout will be complete if MAGI is $279,230 ($263,410 in 2022).

Adoption exclusion.

For 2023, the amount of employer adoption assistance that can be excluded from an employee’s gross income for the adoption of a child will be $15,950 ($14,890 in 2022). In the case of an adoption of a child with special needs, the amount that can be excluded will be $15,950 ($14,890 in 2022). The exclusion is allowed regardless of expenses.

For 2023, the amount excludable from an employee’s gross income will begin to phase out for taxpayers with MAGI in excess of $239,230 ($223,410 in 2022). The phaseout will be complete if MAGI is $279,230 ($263,410 in 2022).

Student loan interest deduction.

For 2023, the deduction phases out ratably for taxpayers other than joint filers with MAGI between $75,000 and $90,000 ($70,000 and $85,000 in 2022), and MAGI between $155,000 and $185,000 for joint filers ($145,000 and $175,000 in 2022).

MAGI limits for making deductible contributions by active plan participants to traditional IRAs.

In general, an individual who isn’t an active participant in certain employer-sponsored retirement plans, and whose spouse isn’t an active participant, may make an annual deductible cash contribution to an IRA up to the lesser of: (1) an inflation-adjusted statutory dollar limit, or (2) 100% of the compensation that’s includible in his or her gross income for that year. For 2023, the statutory dollar limit is $6,500 ($6,000 in 2022), plus an additional $1,000 for those age 50 or older.

If the individual (or his or her spouse) is an active plan participant, the deduction phases out over a specified dollar range of MAGI. For taxpayers filing joint returns, the otherwise allowable deductible contribution will be phased out ratably for 2023 for MAGI between $116,000 and $136,000 ($109,000 and $129,000 in 2022).

For 2023, for single taxpayers and heads of household, the otherwise allowable deductible contribution will be phased out ratably for MAGI between $73,000 and $83,000 ($68,000 and $78,000 in 2022). For married taxpayers filing separate returns, the otherwise allowable deductible contribution will be phased out ratably for MAGI between $0 and $10,000 ($0 and $10,000 in 2022).

For a married taxpayer who is not an active plan participant but whose spouse is such a participant, the otherwise allowable deductible contribution will be phased out ratably for 2023 for MAGI between $218,000 and $228,000 ($204,000 and $214,000 in 2022).

MAGI limits for making contributions to Roth IRAs.

Individuals may make nondeductible contributions to a Roth IRA, subject to the overall limit on IRA contributions.

The maximum annual contribution that can be made to a Roth IRA is phased out for taxpayers with MAGI over certain levels for the tax year. For taxpayers filing joint returns, the otherwise allowable contributions to a Roth IRA will be phased out ratably for 2023 for MAGI between $218,000 and $228,000 ($204,000 and $214,000 in 2022).

For single taxpayers and heads of household, it will be phased out ratably for MAGI between $138,000 and $153,000 ($129,000 and $144,000 in 2022). For married taxpayers filing separate returns, the otherwise allowable contribution will continue to be phased out ratably for MAGI between $0 and $10,000 ($0 and $10,000 in 2022).

Saver’s credit.

For tax years beginning in 2023, an eligible lower-income taxpayer can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10%, depending on filing status and AGI) of up to $2,000 of his or her qualified retirement savings contributions, as follows:

… Joint filers: $0 to $43,500, 50%; over $43,500 but not over $47,500, 20%; over $47,500 but not over $73,000, 10% (no credit if AGI is above $73,000).

… Heads of households: $0 to $32,625, 50%; over $32,625 but not over $35,625, 20%; over $35,625 but not over $54,750, 10% (no credit if AGI is above $54,750).

… All other filers: $0 to $21,750, 50%; over $21,750 but not over $23,750, 20%; over $23,750 but not over $36,500, 10% (no credit if AGI is above $36,500).

By way of comparison, for tax years beginning in 2022, an eligible lower-income taxpayer can claim a nonrefundable tax credit for the applicable percentage (50%, 20%, or 10%, depending on filing status and AGI) of up to $2,000 of his or her qualified retirement savings contributions, as follows:

… Joint filers: $0 to $41,000, 50%; over $41,000 but not over $44,000, 20%; over $44,000 but not over $68,000, 10% (no credit if AGI is above $68,000).

… Heads of households: $0 to $30,750, 50%; over $30,750 but not over $33,000, 20%; over $33,000 but not over $51,000, 10% (no credit if AGI is above $51,000).

… All other filers: $0 to $20,500, 50%; over $20,500 but not over $22,000, 20%; and over $22,000 but not over $34,000, 10% (no credit if AGI is above $34,000).

 

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