[Updated on July 13, 2022 after the release of the inflation numbers for June 2022.]
My other post listed 2022 2023 401k and IRA contribution and income limits. I also calculated the inflation-adjusted tax brackets and some of the most commonly used numbers in tax planning for 2023 using the published inflation numbers and the same formula prescribed in the tax law. I’m calling these projections “preliminary” but they should be fairly close. I’ll keep them updated in the coming months.
2022 2023 Standard Deduction
You don’t pay federal income tax on every dollar of your income. You deduct an amount from your income before you calculate taxes. About 90% of all taxpayers take the standard deduction. The other ~10% itemize deductions when their total deductions exceed the standard deduction. In other words, you’re deducting a larger amount than your allowed deductions when you take the standard deduction. Don’t feel bad about taking the standard deduction!
The basic standard deduction in 2022 and 2023 are:
| 2022 | 2023 (Preliminary) | |
|---|---|---|
| Single or Married Filing Separately | $12,950 | $13,850 |
| Head of Household | $19,400 | $20,800 |
| Married Filing Jointly | $25,900 | $27,700 |
Source: IRS Rev. Proc. 2021-45, author’s own calculations.
People who are age 65 and over have a higher standard deduction than the basic standard deduction.
| 2022 | 2023 (Preliminary) | |
|---|---|---|
| Single, age 65 and over | $14,700 | $15,700 |
| Head of Household, age 65 and over | $21,150 | $22,650 |
| Married Filing Jointly, one person age 65 and over | $27,300 | $29,200 |
| Married Filing Jointly, both age 65 and over | $28,700 | $30,700 |
Source: IRS Rev. Proc. 2021-45, author’s own calculations.
People who are blind have an additional standard deduction.
| 2022 | 2023 (Preliminary) | |
|---|---|---|
| Single or Head of Household, blind | +$1,750 | +$1,850 |
| Married Filing Jointly, one person is blind | +$1,400 | +$1,500 |
| Married Filing Jointly, both are blind | +$2,800 | +$3,000 |
Source: IRS Rev. Proc. 2021-45, author’s own calculations.
2022 2023 Tax Brackets
The tax brackets are based on taxable income, which is AGI minus various deductions. The tax brackets in 2022 are:
| Single | Head of Household | Married Filing Jointly | |
|---|---|---|---|
| 10% | $0 – $10,275 | $0 – $14,650 | $0 – $20,550 |
| 12% | $10,275- $41,775 | $14,650 – $55,900 | $20,550 – $83,550 |
| 22% | $41,775 – $89,075 | $55,900 – $89,050 | $83,550 – $178,150 |
| 24% | $89,075 – $170,050 | $89,050 – $170,050 | $178,150 – $340,100 |
| 32% | $170,050 – $215,950 | $170,050 – $215,950 | $340,100 – $431,900 |
| 35% | $215,950 – $539,900 | $215,950 – $539,900 | $431,900 – $647,850 |
| 37% | Over $539,900 | Over $539,900 | Over $647,850 |
Source: IRS Rev. Proc. 2021-45.
The preliminary 2023 tax brackets are:
| Single | Head of Household | Married Filing Jointly | |
|---|---|---|---|
| 10% | $0 – $11,000 | $0 – $15,700 | $0 – $22,000 |
| 12% | $11,000 – $44,775 | $15,700 – $59,900 | $22,000 – $89,550 |
| 22% | $44,775 – $95,475 | $59,900 – $95,450 | $89,550 – $190,950 |
| 24% | $95,475 – $182,275 | $95,450 – $182,250 | $190,950 – $364,550 |
| 32% | $182,275 – $231,450 | $182,250 – $231,450 | $364,550 – $462,900 |
| 35% | $231,450 – $578,650 | $231,450 – $578,650 | $462,900 – $694,350 |
| 37% | Over $578,650 | Over $578,650 | Over $694,350 |
Source: author’s own calculations.
A common misconception is that when you get into a higher tax bracket, all your income is taxed at the higher rate, and you’re better off not having the extra income. That’s not true. Tax brackets work incrementally. If you’re $1,000 into the next tax bracket, only $1,000 is taxed at the higher rate. It doesn’t affect the income in the previous brackets.
For example, someone single with a $60,000 AGI in 2022 will pay:
| First 12,950 (the standard deduction) | 0% | ||
| Next $10,275 | 10% | ||
| Next $31,500 ($41,775 – $10,275) | 12% | ||
| Final $5,275 | 22% |
This person is in the 22% tax bracket but only $5,275 out of the $60,000 AGI is really taxed at 22%. The bulk of the income is taxed at 0%, 10%, and 12%. The blended tax rate is only 9.9%. If this person doesn’t earn the final $5,275, he or she is in the 12% bracket instead of the 22% bracket, but the blended tax rate only goes down slightly from 9.9% to 8.8%. Making the extra $5,275 income doesn’t cost this person more in taxes than the extra income.
Don’t be afraid of going into the next tax bracket.
2022 2023 0% Capital Gains Tax
When your other taxable income (after deductions) plus your qualified dividends and long-term capital gains are below a cutoff, you will pay no federal income tax on your qualified dividends and long-term capital gains under this cutoff.
This is illustrated by the chart below. Taxable income is the part above the black line, after subtracting deductions. A portion of the qualified dividends and long-term capital gains is taxed at 0% when the other taxable income plus these qualified dividends and long-term capital gains are under the red line.
The red line is close to the top of the 12% tax bracket but they don’t line up exactly.
| 2022 | 2023 (Preliminary) | |
|---|---|---|
| Single or Married Filing Separately | $41,675 | $44,650 |
| Head of Household | $55,800 | $59,800 |
| Married Filing Jointly | $83,350 | $89,300 |
Source: IRS Rev. Proc. 2021-45, author’s own calculations.
For example, suppose a married couple filing jointly has $70,000 in other taxable income (after deductions) and $20,000 in qualified dividends and long-term capital gains in 2022. The maximum zero rate amount cutoff is $83,350. $13,350 of the qualified dividends and long-term capital gains ($83,350 – $70,000) is taxed at 0%. The remaining $20,000 – $13,350 = $6,650 is taxed at 15%.
2022 2023 Gift Tax Exclusion
Each person can give another person up to a set amount in a calendar year without having to file a gift tax form. Not that filing a gift tax form is onerous, but many people avoid it if they can. In 2023, this gift tax exclusion amount will likely increase from $16,000 to $17,000.
| 2022 | 2023 (Preliminary) | |
|---|---|---|
| Gift Tax Exclusion | $16,000 | $17,000 |
Source: IRS Rev. Proc. 2021-45, author’s own calculations.
The gift tax exclusion is counted by each giver to each recipient. As a giver, you can give up to $16,000 each to an unlimited number of people without having to file a gift tax form. If you give $16,000 to each of your 10 grandkids in 2022 for a total of $160,000, you still won’t be required to file a gift tax form. Any recipient can also receive a gift from an unlimited number of people. If a grandchild receives $16,000 from each of his or her four grandparents in 2022, no taxes or tax forms will be required.
2022 2023 Savings Bonds Tax-Free Redemption for College Expenses
If you cash out U.S. Savings Bonds (Series I or Series EE) for college expenses or transfer to a 529 plan, your modified adjusted gross income must be under certain limits to get a tax exemption on the interest. See Cash Out I Bonds Tax Free For College Expenses Or 529 Plan. Here are the income limits in 2022 and 2023:
| 2022 | 2023 (Preliminary) | |
|---|---|---|
| Single, Head of Household | $85,800 – $100,800 | $92,000 – $107,000 |
| Married Filing Jointly | $128,650 – $158,650 | $138,000 – $168,000 |
Source: IRS Rev. Proc. 2021-45, author’s own calculations.
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David Folts says
Thanks Harry: Your work is always spot on!
Kathryn S says
Agree with David. I’ve subscribed to your blog for years. Always informative, never annoying, and the projections spot on!
Linda says
This is very helpful- thank you. Would you be able to provide a detailed example of how the qualified income and long term capital gains tax works?
Thanks for all your work!
Harry Sit says
I added some explanation and an example in the 0% capital gains section.
Ed says
Is there an age adjustment that should have been added to the standard deduction table?
Harry Sit says
As noted, people who are age 65 and over or blind have a higher standard deduction. I added two more tables.
JS says
Biden added another tier of long-term capital gains tax at the 25% rate. No mention of this in the article??
Harry Sit says
Biden didn’t. Neither branch of the legislature passed anything with a 25% capital gains rate yet.
bob nisbet says
What is the standard deduction addition for those 65 and older for 2022?
Also, in the Capital Gains Tax section, taxable income is after subtracting the standard deduction isn’t it?
Thanks.
Harry Sit says
I added a table for age 65 and older. Taxable income is after all deductions.
Sharon Pichai says
I second Kathryn S’s comment and Linda’s request!
Arun says
Harry, Thanks. This is a good reminder! I use TurboTax, but since I use it once every year, I stumble along to find my way around it!
As the markets have surged, I am planning to rebalance my portfolio.
Do you recommend an easier calculator to predict the impact of rebalancing trades in taxable account? Thanks.
Orville R Forbes says
Let me tell you something, whenever I get these emails that there is a new “Research Document” (huge smiley face) I read every word and even if I already know the information your way of outlining and contextualizing makes it seems as if it’s the first time I’m reading it.
Another great one down, waiting patiently for the next.
Harry Sit says
The IRS announced the official numbers this morning. My calculations matched the official numbers 100%.
Eloise says
great info! You answered my question to the T without having to go through so many hoops. Thanks Harry!
Mapleton Reader says
I’m confused. Both CPI-W, CPU-U and Chained CPI-U were up by 5+% this year. Where did the lower 3.1% increase for tax brackets come from?
Harry Sit says
The 5%+ is from one month over the same month a year ago. The tax brackets use a 12-month average. When inflation accelerates, the year-over-year change in one month will be higher than the change in the 12-month average. The average will catch up when it stabilizes.
Stephen Ray says
Thank you for the example of how the 0% rate works with long term capital gains. I was not understanding how to relate ordinary income to the $83,350 (MFJ) limit and then how to anticipate the amount of taxes owed on amounts above that level.
Chrica says
Harry, you are the greatest!
Can you please simplify qualified dividends and capital gains worksheet?
For a single person 30,000 qualified dividends and 20,000 capitalgains.
Long term capital loss carryover 60,000
Taxable income 85,000
How much tax will be on qualified dividends?
Thank you.
Harry Sit says
The capital gains are absorbed by the capital loss carryover. $55,000 taxable income before qualified dividends is already above the $41,675 threshold for single. 100% of the qualified dividends will be taxed at 15%. 15% on $30,000 equals $4,500.
Steve M says
Thank you, very helpful!
Orville F. says
Another homerun. Thank you.
Harry, whenever you come Orlando for vacation we need to sit and have few of those cocktails in carved out pineapples with umbrellas.
O.F.
Jason says
We are getting fairly close to the expiration of the Trump tax cuts (the TCJA.) Unless Congress extends them in 2024, 2025 might be a truly chaotic tax year.
Stephe says
Yes, they expire in only 3 years, 5.5 months, unless they make tax law changes after the start of the calendar year.
Steve M says
Someone’s bad at math! They expire in 2 and a half years, not 3 and a half.
Nate says
Harry, you provide a valuable resource in calculating and posting these types of posts. Thank you and please don’t ever stop!