Here’s a little bit of good news to hang onto as we move closer to 2023: The IRS recently announced significant changes to the standard deduction, federal income tax brackets, and dozens of other provisions that could help taxpayers hold on to more of their money next year.
The adjustments won’t apply to the 2022 return most taxpayers must file by mid-April. But some workers can expect to take home more money in their paychecks starting in January (due to lower withholding amounts), and others will see the benefits when they file their 2023 return.
The IRS tweaks the tax code every year to protect Americans from paying higher taxes as cost-of-living increases erode the value of the dollar. However, the 2023 adjustments, which are based on this year’s soaring inflation rates, are much larger than usual.
Here are some of the IRS inflation adjustments that will affect taxpayers in 2023:
Retirement Plan Contributions
The new cost of living adjustments will bump up the limits on how much individuals can contribute to retirement accounts, including 401(k)s, 403(b)s, and traditional and Roth IRAs.
Here are the contribution limits for 2023:
| Account Type | 2023 Contribution Limit | 2023 Catch-up Contribution (50+) |
| 401(k)s, 403(b)s, most 457 plans and Thrift Savings Plans |
$22,500 (up from $20,500) | $7,500 (up from $6,500) |
| Traditional IRAs and Roth IRAS |
$6,500 (up from $6,000) | $1,000 (no change) |
Income limits for Roth IRA contributions also will increase in 2023:
| Filing Status | 2023 Income Phase-out Range |
| Single filers and heads of household |
$138,000 to $153,000 (up from $129,000 to $144,000) |
| Married couples filing jointly |
$218,000 to $228,000 (up from $204,000 to $214,000) |
Download the 2023 Retirement Plan Contribution Limits Guide for more details.
Standard Deduction
For the 2023 tax year, the standard deduction—which reduces the amount of adjusted gross income on which you are taxed—will increase to the following:
| Filing Status | 2023 Standard Deduction |
| Single filers | $13,850 (a $900 increase) |
| Head of household | $20,800 (a $1,400 increase) |
| Married couples filing jointly |
$27,700 (an $1,800 increase) |
Tax Brackets
There are currently seven tax brackets—and that won’t change. Instead, the taxable income values for each bracket will increase by roughly 7%. Here’s what the brackets will look like in 2023:
| Tax Rate | Taxable Income (Single) |
Taxable Income (Married Filing Jointly) |
| 10% | Up to $11,000 | Up to $22,000 |
| 12% | $11,001 to $44,725 | $22,001 to $89,450 |
| 22% | $44,726 to $95,375 | $89,451 to $190,750 |
| 24% | $95,376 to $182,100 | $190,751 to $364,200 |
| 32% | $182,101 to $231,250 | $364,201 to $462,500 |
| 35% | $231,251 to $578,125 | $462,501 to $693,750 |
| 37% | Over $578,125 | Over $693,750 |
Other Tax Provisions
The IRS also increased the thresholds for many other tax provisions for 2023, including the Alternative Minimum Tax exemption amount, estate and gift tax exclusions, the maximum Earned Income Tax Credit amount, and contributions to health flexible spending arrangements. Depending on your circumstances, these changes also could impact your tax bill next year.
How Octavia Can Help
Tax planning is a key part of any comprehensive financial plan, but it can be complicated. You want to be sure you’re getting every deduction, exemption, exclusion, and credit to which you’re entitled—every year.
Your Octavia wealth advisor can assist you in identifying and making the most of any changes that could affect your tax rate. Schedule time now to discuss how Octavia’s integrated approach to tax planning can save you money.
tax changestax planningAll information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
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