Every year the IRS releases inflation adjustments for more than 60 tax provisions, including income tax, standard deduction, and gift tax exemption amounts. This adjustment is intended to offset salaries, which are often adjusted for inflation. In 2022, the IRS released the tax year 2023 annual inflation adjustments in Revenue Procedure 2022-38.
Beginning with tax year 2018, most inflation adjustments replaced the Consumer Price Index with the Chained Consumer Price Index, as the Tax Cuts and Jobs Act required. The change in the calculation is highly technical, but the end result is much smaller increases in inflation adjustments. Despite that, historically high inflation at the end of 2021 and throughout 2022 has led to increases in tax-related amounts far larger than seen in decades.
In addition to changing how inflation adjustments are calculated, the Tax Cuts and Jobs Act also produced a number of new items to adjust annually, including eliminating the personal exemption deduction. Despite this, the personal exemption is calculated every year, as it is still used in a number of instances, such as the qualifying relative test for head of household filing status, and a qualified disability trust’s deduction in lieu of a personal exemption.
Once again for 2023 there are seven tax brackets for most ordinary income: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. More can be found in the table below.
