The Internal Revenue Service (IRS) recently announced the annual inflation adjustments for tax year 2023. As a result of these adjustments, more than 60 tax provisions have been altered. Below are highlights of some essential changes and what they mean to you.

Changes to Standard Deduction:

  • $27,700 for married couples filing jointly, an increase of $1,800 from prior tax year
  • $13,850 for single taxpayers and married individuals filing separately, an increase of $900 from prior tax year
  • $20,800 for heads of households, an increase of $1,400 from prior tax year

 Marginal Rates: 

Tax RateSingle FilersJoint FilersHead of Household Filers
10%Under $11,000Under $22,000Under $15,700
12%Over $11,000Over $22,000Over $15,700
22%Over $44,725Over $89,450Over $59,850
24%Over $95,375Over $190,750Over $95,350
32%Over $182,100Over $364,200Over $182,100
35%Over $231,250Over $462,500Over $231,250
37%Over $578,125Over $693,750Over $578,100

The Alternative Minimum Tax: 

The alternative minimum tax exemption amount for tax year 2023 is:

  • $81,300 and begins to phase out at $578,150 for single filers ($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 started to phase out at $1,079,800)

Wage Cap for Social Security:

  • For 2023, the wage base for the 6.2 percent portion of social security tax, also known as old age, survivors, and disability insurance, is increased to $160,200. There is no wage cap for the 1.45 percent Medicare tax, also known as hospital insurance.

Additional Medicare Tax:

Higher-income workers may have to pay an Additional Medicare tax of 0.9%. This tax applies to individuals with wages and self-employment income exceeding:

  • $250,000 for married taxpayers who file a joint return
  • $125,000 for married taxpayers who file separate returns; and
  • $200,000 for other taxpayers

Retirement Plan:

The 2022 and 2023 values for various retirement plan cost-of-living adjusted amounts are as follows:

Description of Limit20222023
Maximum Section 401(k) Salary Deferral$20,500$22,500
Catch-Up Contributions$6,500$7,500
Section 457(b) Plan Deferrals$20,500$22,500
Annual Compensation Limit$305,000$330,000
Dollar Limit on Annual Benefits in a Defined Benefit Plan$245,000$265,000
Dollar Limit on Annual Additions under a Defined Contribution Plan$61,000 plus
$66,000 plus
Limits Used in Definition of Highly Compensated Employees Under 414(q)$135,000$150,000
Key Employee$200,000$215,000
Social Security Wage Base$147,000$160,200

Earned Income Tax Credit:

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

Qualified Transportation Fringe Benefit:

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

Contributions to Health Flexible Spending Arrangements:

  • 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.

 Medical Savings Account:

  • For tax year 2023, participants who have self-only coverage must have a plan with an annual deductible that is not less than $2,650, up $200 from tax year 2022; but not more than $3,950, an increase of $250 from tax year 2022. 
  • The maximum out-of-pocket expense amount is $5,300, up $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 $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.

 Foreign Earned Income Exclusion: 

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

Estate Tax Exclusion:

  • 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.

 Annual Gift Exclusion:

  • The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2021. 

Adoption Credit:

  • 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.

Items Not Affected:

By statute, certain items that were indexed for inflation in the past are currently not adjusted and unaffected by indexing. With that in mind:

  • The personal exemption for tax year 2023 remains at zero, as it was for 2022. This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
  • There is no limitation on itemized deductions for 2023, as in 2022, 2021, 2020, 2019, and 2018. The Tax Cuts and Jobs Act eliminated that limitation.
  • The adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after December 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

If you would like to discuss any of these changes and their impact on your tax situation please do not hesitate to contact us.

About the Authors

Giancarlo Revilla is an Accountant in the SobelCo Tax Practice. Giancarlo’s primary focus is tax services and compliance issues in the real estate and food & beverage industries.

For more information contact Giancarlo Revilla at

Mariana Moghadam is a Member of the Firm and is Tax Leader of the firm's Real Estate practice group. With more than 20 years of professional experience in public accounting and private industry, her extensive background covers a full range of domestic tax entities (corporations, partnerships, limited liability companies, and REITs) and jurisdictions (federal, state, local, and multi-state taxes) as well as international matters.