The inflation rates in the United States are slowly starting to decline in 2023 after peeking at 9.1% in the summer of 2022. The federal tax bracket adjustments reflect this as the IRS expanded the range for each bracket.
As a result, navigating federal tax brackets in 2023 could be challenging, even if your taxable income has remained unchanged since last year.
The good news is that the IRS won’t increase tax rates for all tax brackets in 2023, so your tax liability will remain the same if your tax bracket doesn’t change after the most recent updates.
This guide will provide you with the assistance you need to navigate federal tax brackets and prepare for the 2024 filing season.
Table of Contents
The Purpose of Tax Bracket Adjustments
The IRS adjusts tax brackets to prevent bracket creep. This term refers to situations where inflation pushes taxpayers into a higher tax bracket.
Revenue Procedure 2022-38, the IRS released in October 2022, presented new tax brackets taxpayers will use to determine the tax rates for different portions of their taxable incomes in 2024.
Tax rates for all seven tax brackets will remain the same. So, depending on how much you earn, you’ll have to deduct 10%, 12%, 22%, 24%, 32%, 34%, or 37% of your taxable income when calculating your federal taxes.
The width (the lowest and highest income amount taxed at a specific tax rate) for each bracket will increase for the 2023 tax year.
Hence, your tax rate will peek at 22% if your taxable income is under 95,275$ and you choose the Single filing status.
The width of the 22% tax bracket will increase by $6,298 from the year before. So now, this tax bracket will cover $50,649 of your taxable income as opposed to $47,299 in 2022.
Tax Rates and Tax Brackets in 2023
Let’s look at how tax brackets and tax rates will look in 2023:
| Tax rate | Single | Married Filing Jointly or Qualifying Widower | Married Filing Separately | Head of Household |
| 10% | $0-$11,000 | $0-$22,000 | $0-$11,000 | $0-$15,700 |
| 12% | $11,001 -$44,725 | $22,001-$89,450 | $11,001-$44,725 | $15,701-$59,850 |
| 22% | $44,726 -$95,375 | $89,451-$190,750 | $44,726-$95,375 | $59,851-$95,350 |
| 24% | $95,376 -$182,100 | $190,751-$364,200 | $95,376-$182,100 | $95,351-$182,100 |
| 32% | $182,101 -$231,250 | $364,201-$462,500 | $182,101-$231,250 | $182,101-$231,250 |
| 35% | $231,251 –$578,125 | $462,501-$693,750 | $231,251-$346,875 | $231,251-$578,100 |
| 37% | Over 578,126 | Over $693,751 | Over $346,876 | Over $578,100 |
Besides widening tax brackets, the IRS has also increased standard deductions for taxpayers for all filing statuses.
Hence, taxpayers with the Single filing status can deduct $13,850 from their gross income on their 2024 returns, a $900 (7%) increase from the previous year. The standard deduction amount has increased by $1,800 for taxpayers with the Married Filing Jointly filing status.
Consequently, the tax brackets applicable to your taxable income will depend on your filing status and the maximum standard deduction you can claim.
Navigating Federal Tax Brackets
Tax rates in the progressive tax system increase with the taxpayer’s taxable income. As a result, the first $11,000 of your income is taxed at a 10% rate, and the rate keeps increasing with your income.
It’s paramount to understand that your taxable income isn’t taxed at a single rate if you fall in a particular bracket. Instead, different rates apply to portions of the income that cover different tax brackets.
For instance, if your taxable income is $90,000, the first $11,000 are taxed at 10%. Afterward, you have to calculate the difference between $11,000 and $44,725 (33,725) and apply a 12% tax rate to the corresponding portion of your taxable income.
Repeat the same process for the 22% tax bracket and apply the appropriate tax rate to the remaining portion of the income.
Please note that the process we’ve described applies to the Single filing status and that you must use the appropriate amounts if you choose a different filing status on your return.
Factors that Can Affect Your Tax Bracket
Standard deductions enable you to determine your adjusted gross income. Optionally, you can itemize deductions on your return to calculate the adjusted gross income.
Your taxable income will depend on the maximum standard deduction you claim for a specific tax year.
Claiming a dependent on Form W-4 also reduces your taxable income, which may push you into a lower tax bracket.
Tax credits don’t affect your taxable income, but claiming CTC or EITC on the tax return reduces the amount you owe for federal tax on a dollar-to-dollar basis.
The IRS adjusted Earned Income Tax Credits for the 2023 tax year enabling taxpayers with Head of Household, Married Filed Jointly, and Single filing statuses with no children to claim a $600 credit.
This amount is considerably higher for taxpayers with one or more children.
- The maximum credit for one child – $3,995
- The maximum credit for two children – $6,604
- The maximum credit for three children or more – $7,430
Child Tax Credits aren’t adjusted for inflation, so parents cannot claim over $2,000 per child. However, the IRS will increase the refundable amount for this credit from $1,500 to $1,600 in 2023.
Capital Gains
Taxpayers who expect to have capital gains in 2023 will have to use a different tax bracket system to calculate how much they owe to the IRS.
| Tax rate | Single taxpayers | Married taxpayers | Heads of households |
| 15% | Capital gains of over $44,625 | Capital gains of over $89,250 | Capital gains of over $59,750 |
| 20% | Capital gains of over $492,300 | Capital gains of over $553,850 | Capital gains of over $523,050 |
The tax rate for capital gains under $44,626, $89,250, or $59,750 is 0%.
It’s also worth noting that the IRS increased annual exclusion for gifts in 2023 to $17,000 from $16,000 in 2022.
What is the Alternative Minimum Tax?
The IRS introduced an additional tax system in the 1960s to ensure that the wealthiest taxpayers couldn’t avoid paying income taxes.
Eligible taxpayers must calculate the Alternative Minimum Tax and the regular income tax system and pay the higher amount. The IRS applies 26% and 28% tax rates for qualifying AMT amounts.
Alternative Minimum Taxable Income prevents low- and middle-income taxpayers from becoming eligible for taxation under this system by allowing them to exempt a sizeable portion of their income from AMTI.
Standard exemption amounts in 2023 are $81,300 for single taxpayers or $126,500 for married taxpayers filing jointly.
Frequently Asked Questions
Increasing your taxable income may make investing in a regular Roth IRA retirement plan difficult, but you can still invest in a backdoor Roth IRA.
The most recent tax bracket adjustment widens the gap between the lowest and highest amounts for different tax rates. These changes reduce bracket creep and ensure most taxpayers stay within the same tax bracket.
Taxpayers with a Single filing status and $1 million taxable income will owe more than $328,000 to the IRS in 2023.
Claiming a student loan interest deduction can lower your taxable income, but you must remain in the 22% tax bracket to be eligible for this deduction.
The Effect of Inflation on 2023 Tax Brackets
Experts are anticipating that the 2023 tax year will bring another level of tax complexity and refund volatility, despite the IRS’s effort to eliminate bracket creep caused by inflation.
Wider tax brackets indicate that most taxpayers won’t have to pay more federal taxes than they did in 2022. Moreover, the IRS adjusted standard deductions and other tax breaks to amortize the effects of inflation on taxpayers.
Navigating tax brackets in 2023 will remain relatively straightforward, as you only need to know your filing status to determine which tax rates apply to your taxable income.
Hopefully, this guide to tax brackets in 2023 will make the upcoming filing season easier for you.
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
