2022 2023 Tax Brackets, Standard Deduction, 0% Capital Gains, etc.

[Updated on July 13, 2022 after the release of the inflation numbers for June 2022.]

My other post listed the 2022 2023 retirement account 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.

Table of Contents2022 2023 Standard Deduction2022 2023 Tax Brackets2022 2023 0% Capital Gains Tax2022 2023 Gift Tax Exclusion2022 Savings Bonds Tax-Free Redemption for College Expenses2022 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:

20222023 (Preliminary)Single or Married Filing Separately$12,950$13,850Head of Household$19,400$20,800Married Filing Jointly$25,900$27,700Basic Standard Deduction

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.

20222023 (Preliminary)Single, age 65 and over$14,700$15,700Head of Household, age 65 and over$21,150$22,650Married Filing Jointly, one person age 65 and over$27,300$29,200Married Filing Jointly, both age 65 and over$28,700$30,700Standard Deduction for age 65 and over

Source: IRS Rev. Proc. 2021-45, author’s own calculations.

People who are blind have an additional standard deduction.

20222023 (Preliminary)Single or Head of Household, blind+$1,750+$1,850Married Filing Jointly, one person is blind+$1,400+$1,500Married Filing Jointly, both are blind+$2,800+$3,000Additional Standard Deduction for Blindness

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:

SingleHead of HouseholdMarried Filing Jointly10%$0 – $10,275$0 – $14,650$0 – $20,55012%$10,275- $41,775$14,650 – $55,900$20,550 – $83,55022%$41,775 – $89,075$55,900 – $89,050$83,550 – $178,15024%$89,075 – $170,050$89,050 – $170,050$178,150 – $340,10032%$170,050 – $215,950$170,050 – $215,950$340,100 – $431,90035%$215,950 – $539,900$215,950 – $539,900$431,900 – $647,85037%Over $539,900Over $539,900Over $647,850Tax Brackets

Source: IRS Rev. Proc. 2021-45.

The preliminary 2023 tax brackets are:

SingleHead of HouseholdMarried Filing Jointly10%$0 – $11,000$0 – $15,700$0 – $22,00012%$11,000 – $44,775$15,700 – $59,900$22,000 – $89,55022%$44,775 – $95,475$59,900 – $95,450$89,550 – $190,95024%$95,475 – $182,275$95,450 – $182,250$190,950 – $364,55032%$182,275 – $231,450$182,250 – $231,450$364,550 – $462,90035%$231,450 – $578,650$231,450 – $578,650$462,900 – $694,35037%Over $578,650Over $578,650Over $694,350Tax Brackets

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 $10,27510%Next $31,500 ($41,775 – $10,275)12%Final $5,27522%Progressive Tax Rates

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.

20222023 (Preliminary)Single or Married Filing Separately$41,675$44,650Head of Household$55,800$59,800Married Filing Jointly$83,350$89,300Maximum Zero Rate Amount for Qualified Dividends and Long-term Capital Gains

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.

20222023 (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 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. Here are the income limits depending on your filing status in 2022:

Single, Head of HouseholdMarried Filing JointlyFull Exemption$85,800$128,650Partial Exemption$100,800$158,650Income Limit for Tax-Free Savings Bond Redemption for Higher Education

Source: IRS Rev. Proc. 2021-45.

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