What Is My Tax Bracket For 2023?

The IRS recently released the new tax brackets for the 2023 tax year so now you can start thinking about how to handle your 2023 finances in a tax-efficient way. The seven 2023 tax rates themselves didn't change (they are the same as those in effect for the 2022 calendar year), however the tax bracket ranges were modified based on inflation. You could be in a different tax bracket for 2023 than the last time you reported your taxes, even if your income has not changed.

Tax Brackets Are Marginal

Being "in" a certain tax bracket doesn't mean you pay that federal income tax rate on everything you make. The progressive tax system means that people with higher taxable incomes are subject to higher federal income tax rates and people with lower taxable incomes are subject to lower federal income tax rates.

The IRS divides income into different tax rates. Each subsequent portion of your income will have an increased tax rate. For example, if you are single and make $40,000 in 2023, your first $11,000 will be taxed at 10 percent. The next portion of your income, from $11,001 to $44,725 will be taxed at an increased rate of 12 percent. The next portion of your income, from $44,725 to $95,375 will be taxed at 22% and so on and so on.

Remember, if you're in the 24% tax bracket it does not mean that you pay 24% income tax across the board. As your income increases you’ll fall into higher tax brackets and will have a higher tax rate for each portion of your increased income. 

Why Would My Tax Bracket Be Different? 

The IRS regularly adjusts tax brackets to take inflation into consideration. This is because with inflation people will face higher prices. That means the purchasing power of their dollar is decreased. Knowing this, the IRS adjusts brackets in order to avoid bracket creep, a circumstance that occurs when inflation pushes your income into a higher tax bracket or credits and deductions are reduced. In this scenario an individual may not actually have increased purchasing power or greater disposable income, even with an increase in wages and salaries.

2023 Tax Brackets 

Without further ado, here are the 2023 tax brackets according to your filing status and income from the IRS:

Single 2023 Tax Brackets

Married Filing Jointly 2023 Tax Brackets

Head of Household 2023 Tax Brackets

Married Filing Separately 2023 Tax Brackets

In addition to the tax inflation adjustments, the IRS also altered standard deductions. While the above rates and brackets are at the federal level, different states might have varying brackets and rates. The table below shows the standard deduction amounts for 2021:

 *The additional standard deduction for people who have reached age 65 (or who are blind) is $1,500 for each married taxpayer or $1,850 for unmarried taxpayers.

Retirement Plan Contribution Limits

IRA:

The contribution limit for Roth IRA and traditional IRA accounts is unchanged at $6,500.

The catch-up contribution limit for people age 50 or over does not get inflation adjustments and therefore is still $1,000.

401(k), 403(b), 457(b) Contribution Limits:

The salary deferral limit for 401(k) and other similar plans is increased from $20,500 to $22,500.

The catch-up contribution limit for 401(k) and other similar plans for people age 50 and over is $7,500.

SEP IRA:

The maximum possible contribution for defined contribution plans (e.g., for a self-employed person with a sufficiently high income contributing to a solo 401(k)) is increased from $61,000 to $66,000.

Simple IRA:

The maximum contribution for a Simple IRA is $15,500 and catch-up contributions for age 50 and over is $3,500

Health Savings Account Contribution Limits

For 2023, the maximum HSA contribution for somebody with self-only coverage under a high deductible health plan is $3,850. The limit for somebody with family coverage under such a plan is $7,750. HSA catch-up contributions are $1000.

2023 Capital Gains and Qualified Dividends

For 2023, long-term capital gains and qualified dividends face the following tax rates:

                                       FILING STATUS                                               0%                                    15%                                          20%

Alternative Minimum Tax (AMT)

The AMT exemption amount is increased to:

• $81,300 for single people and people filing as head of household,
• $126,500 for married people filing jointly, and
• $63,250 for married people filing separately.

Estate and Gift Tax for 2023

The U.S. Internal Revenue Service has released Rev. Proc. 2022-38 which lists 2023 inflation adjustments for estate tax purposes. 

The annual gift tax exclusion for 2023 will be increasing to $17,000 – an increase from $16,000 in 2022.

In addition, the estate and lifetime gift tax exemption will be $12.92 million per individual for 2023, an increase from $12.06 million in 2022. This exemption represents the amount of a decedent’s estate (including previously taxable gifts) that is exempt from estate tax.

You Need A Plan

No one wants to pay more taxes than they have to or need to. We want to pay Aunt IRS what we owe but we don't want to leave a tip. Your retirement distribution strategy should consider your income tax situation.

A goal of retiring - without a plan - is simply a plan to run out of money. At 80/20 Financial Services our mission is to increase your time, money and peace of mind by helping you create an income and investment plan that outpaces inflation and aligns with your retirement goals while guiding you through the completion of that plan year after year.

If you are retired or nearing retirement, we can create a plan which will outpace inflation and accomplish any other retirement goals you might have. The consultation is free and without obligation. Contact us to set up a consultation.

For more articles about retirement planning and investing click here. 

Brian Coleman/Electric Cooperative Retirement Specialist

80/20 Financial Services is an Independent Registered Investment Advisor (RIA) registered in the state of Missouri (CRD# 300772). We work with clients in Missouri and throughout the United States. Being independent allows us to work exclusively for YOU.

Our specialty is retirement planning for electric cooperative employees within 5 years of retirement or already retired.

We will also work with the families of cooperative employees.

Retirement can last 20-30 years. You need a plan!

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