IRS Releases 2023 Inflation Adjustments to Fringe Benefits and Income Taxes

Author: Rena Pirsos, Brightmine Legal Editor

October 19, 2022

Some employer benefits will be more generous next year, thanks to inflation. The IRS has released Revenue Procedure 2022-38, which lists the inflation adjustments for a variety of employer-provided fringe benefits. Also included in the revenue procedure are adjustments to the standard deductions and personal income tax rate brackets.

Fringe Benefit Limits

The following fringe benefit amounts have been adjusted for inflation for 2023:

  • An employer may provide an employee with up to $15,950 (up from $14,890) in adoption assistance benefits on a tax-free basis. The benefit begins to phase out for an employee who earns more than $239,230 (up from $223,410) and is completely phased out for an employee who earns more than $279,230 (up from $263,410).
  • The monthly amount an employee can exclude from income for employer-provided parking or mass transit benefits increases to $300 (up from $280).
  • For plan years beginning in 2023, the maximum amount an employee may defer to a health flexible spending account increases to $3,050 (up from $2,850).
  • For Archer medical savings accounts, the range for determining high-deductible health plans for self-only coverage increases to $2,650 - $3,950 (up from $2,450 - $3,700). The limit on out-of-pocket expenses for individuals with self-only coverage will increase to $5,300 (up from $4,950). The range for determining high-deductible health plans for family coverage increases to $5,300 - $7,900 (up from $4,950 - $7,400). The limit on out-of-pocket expenses for an individual with family coverage increases to $9,650 (up from $9,050).
  • The maximum amount of long-term care insurance that is excludable from an employee's income per day is $420 (up from $390).
  • The total amount of payments and reimbursements for small employer health reimbursement arrangements (QSEHRAs) is $5,850 for self-only coverage (up from $5,450) and $11,800 for family coverage (up from $11,050).

Personal Income Tax Amounts

An employee must take the following information into consideration when figuring their 2023 income tax liability:

  • The deemed personal exemption amount increases to $4,700 (up from $4,400).
  • The standard deduction amounts increase to $27,700 (up from $25,900) for married couples filing jointly or surviving spouses; $20,800 (up from $19,400) for heads of household; $13,850 (up from $12,950) for unmarried taxpayers and married couples filing separately; and $1,250 (up from $1,150), or the sum of $400 and the individual's earned income for taxpayers who can be claimed as a dependent, whichever is greater.
  • The additional standard deduction for married couples filing jointly and individuals who are aged and blind is $1,500 (up from $1,400). The additional standard deduction for other taxpayers is $1,850 (up from $1,750).

Foreign Earned Income, Housing Amounts

To avoid double taxation, the Internal Revenue Code allows an employee who works overseas to exclude certain amounts from income. The following are the 2023 amounts:

  • The maximum foreign earned income exclusion increases to $120,000 (up from $112,000).
  • The maximum foreign housing exclusion increases to $16,800 (up from $15,680).
  • The foreign housing-cost exclusion limitation increases to $36,000 (up from $33,600).
  • The base housing amount increases to $19,200 (up from $17,920).

Miscellaneous Adjustments

Finally, the 2023 pipeline construction industry per diems are $13 per hour for fuel (up from $12) and $20 per hour for rig-related expenses that are deemed substantiated (up from $18).