What Is the Standard Deduction in 2023? Your Updated Tax Brackets Guide
With the filing season for the 2022 tax year officially underway, many Americans are already looking ahead to tax planning for the 2023 tax year.
After a year in which the most extreme inflation in decades drove prices sky-high for expenses like rent, gas, and groceries, the IRS’ annual tax bracket adjustments will be welcome news for many taxpayers. Although the Fed’s slowed pace of rate hiking indicates cooling inflation and labor cost data appears promising, Americans are still reeling from a bruising economic year and are sure to be eager for some relief at tax time.
This year, the IRS has countered high inflation with a supersized 7% increase to standard deductions across the board — a move that could mean savings for taxpayers in all income brackets.
In this article, we’ll dive deeper into the standard deduction, what’s changing in 2023, and how it could impact your tax returns in 2023. Continue reading to learn more.
How does the standard deduction work?
Broadly speaking and in simple terms, most Americans have a choice of methods to reduce their taxable income when filling out their federal income tax return: either taking itemized deductions (specific types of eligible expenses that must be individually listed using Schedule A) or using the standard deduction (a flat amount determined by factors like income, age, filing status, and more).
In certain circumstances, itemized deductions can maximize savings. However, taking this approach requires you to keep track of your deductible expenses throughout the year, maintain supporting documentation like receipts and bank statements, and determine whether the total amount of allowable itemized deductions exceed the amount you would get under the standard deduction. If that sounds like a lot of work, it is — unless itemizing yields a lower tax burden than the standard deduction, it’s likely not worth the time and effort.
Some examples of circumstances in which you may benefit from itemizing include:
- You can’t use the standard deduction, or the amount you can claim is limited;
- You had significant unreimbursed medical or dental expenses;
- You paid mortgage interest or real property taxes on your home;
- You had large “Other Itemized Deductions” or large unreimbursed casualty or theft losses from a federally-declared disaster; or,
- You made considerable contributions to qualified charities.
For an estimated 90% of Americans, the standard deduction is the quicker and more straightforward approach.
Each year, the IRS adjusts things like tax brackets, the value of credits and deductions, contribution limits to retirement plans, and more. They do this for two primary reasons:
- First, to prevent “bracket creep,” which occurs when inflation pushes taxpayers into higher income brackets, thereby incurring higher tax rates without a corresponding boost in real income.
- Second, the adjustment limits the amount of money the federal government can bring in due to pure inflation. Put another way, it prevents Congress from taking in more tax revenue without raising taxes.
In the wake of last year’s record inflation, 2023’s adjustments are substantial.
How will taxes change in 2023?
In addition to new tax brackets and standard deductions, the IRS has also made some other changes this year.
For example, 401(k) and IRA contribution limits are up by 9.8% in 2023 — another record-setting increase of about $2,000 over last year’s limits and the largest jump ever in dollars and percentage. Starting this year, taxpayers may contribute up to $22,500 into 401(k), 403(b), and most 457 plans. Similarly, the annual contribution limit to an IRA is up to $6,500 this year, an increase of $500. However, the IRA catch-up contribution limit for individuals aged 50 and over remains at $1,000 in 2023.
Also new this year: the “optional standard mileage rate,” used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes, is up by 3 cents per mile, bringing the rate to 65.5 cents per mile driven for business use. Although the IRS typically updates this rate once a year, this past July saw a rare mid-year increase due to high gas prices — the first since 2011. (Typically, when the IRS has raised this rate in the past, it has subsequently lowered it again.)
There are other changes the IRS has announced for the coming year, as well. However, the most relevant news for most taxpayers remains the adjustments to the standard deduction and tax brackets.
Will the standard deduction change in 2023?
| Filing Status | Standard Deduction in 2023 |
| Single; Married Filing Separately | $13,850 |
| Married Filing Jointly and Surviving Spouses | $27,700 |
| Head of Household | $20,800 |
What are the updated tax brackets for 2023?
As you are likely aware, the United States tax system is progressive, meaning you are taxed at higher rates as you earn more. Here’s where it gets slightly confusing: Different amounts of your income are generally taxed at different rates, rather than your entire income being taxed at a single flat rate.
For example, if you are an unmarried filer with a total taxable income of $95,000, that amount is not entirely taxed at the top rate of 22%. Rather, the first $11,000 is taxed at 10%, the next $33,725 is taxed at 12%, and the last $50,275 is taxed at the 22% top rate.
Here’s where the new tax brackets fall for single filers:
| Tax Rate | For Incomes Above |
| 37% | $578,125 |
| 35% | $231,250 |
| 32% | $182,100 |
| 24% | $95,375 |
| 22% | $44,725 |
| 12% | $11,000 |
| 10% | $11,000 or less |
And for married filers or those filing jointly:
| Tax Rate | For Incomes Above |
| 37% | $693,750 |
| 35% | $462,500 |
| 32% | $364,200 |
| 24% | $190,750 |
| 22% | $89,450 |
| 12% | $22,000 |
| 10% | $22,000 or less |
How can you lower your taxable income in 2023?
The best ways to maximize your refund are to maximize your deductions and ensure your filing is accurate. Filing your federal taxes on time or filing for an extension before April 18th, 2023, is also essential to avoiding costly late fees. (State deadlines vary, so check with your state government to learn the relevant deadlines for your state return.)
There are also other options you should consider, depending on your circumstances. Remember, no two tax situations are identical, and this article is not meant to constitute specific advice.
Consider increasing your retirement account contributions to reduce your taxable income, which could, in turn, reduce your tax burden in 2023. Likewise, contributing to a health savings account (HSA) or 529 college savings account or opening a flexible spending account (FSA) could also help you save some money at tax time.
Ultimately, the most surefire way to ensure you are maximizing your refund and minimizing your tax bill by taking advantage of every possible tax-saving opportunity is to consult a tax professional. Even if you just need assistance sorting through your unique circumstances and understanding your options, we stand ready to help.
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