The IRS has announced new inflation adjustments for 2023.

The 2023 tax brackets have upper limits 7 percent higher than the brackets used for 2022 returns, according to Forbes. Federal tax percentage rates will remain the same until 2025 as a result of the Tax Cuts and Jobs Act (TCJA) of 2017, but the income thresholds that are used to set the tax brackets are adjusted each year based on inflation, according to Nerd Wallet.

The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up by $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up by $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up by $1,400 from the amount for tax year 2022.

For tax year 2023, the top marginal tax rate remains 37 percent for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).

The other rates are: 35 percent for incomes over $231,250 ($462,500 for married couples filing jointly); 32 percent for incomes over $182,100 ($364,200 for married couples filing jointly); 24 percent for incomes over $95,375 ($190,750 for married couples filing jointly); 22 percent for incomes over $44,725 ($89,450 for married couples filing jointly); and 12 percent for incomes over $11,000 ($22,000 for married couples filing jointly).

The lowest rate is 10 percent for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).

In addition, the IRS made the following announcements:

● The Alternative Minimum Tax (AMT) exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300). The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).

● The tax year 2023 maximum Earned Income Tax Credit amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022. 

● For tax year 2023, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up by $20 from the limit for 2022.

● For the taxable years beginning in 2023, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,050. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $610, an increase of $40 from taxable years beginning in 2022.

● For tax year 2023, participants who have self-only coverage in a medical savings account, the plan must have an annual deductible that is not less than $2,650, up by $200 from tax year 2022; but not more than $3,950, an increase of $250 from tax year 2022. For self-only coverage, the maximum out-of-pocket expense amount is $5,300, up by $350 from 2022. For tax year 2023, for family coverage, the annual deductible is not less than $5,300, up from $4,950 for 2022; however, the deductible cannot be more than $7,900, up by $500 from the limit for tax year 2022. For family coverage, the out-of-pocket expense limit is $9,650 for tax year 2023, an increase of $600 from tax year 2022.

● For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 for tax year 2022.

● Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022. 

● The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2022.

● The maximum credit allowed for adoptions for tax year 2023 is the amount of qualified adoption expenses up to $15,950, up from $14,890 for 2022.

The personal exemption for tax year 2023 is not affected by indexing and remains at zero, as it was for 2022; the elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act of 2017. There  there is no limitation on itemized deductions, and the modified adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is not adjusted for inflation for taxable years beginning after Dec. 31, 2020.

The IRS also noted that, beginning with tax year 2023, the Inflation Reduction Act extended certain energy-related tax breaks and indexed for inflation the energy-efficient commercial buildings deduction.