While many tax figures, such as exclusions or penalties, remain the same from year to year, there are certain numbers that are adjusted typically on annual basis, taking into account inflation and cost-of-living increases.
Based on the latest Consumer Price Index increase, the following expat-related adjustments will apply in 2023 (as confirmed by IRS Revenue Procedure 2022-38):
Inflation Adjustments for Foreign Tax Items
Foreign earned income exclusion. If you are able to establish that your tax home is outside the U.S. and can satisfy either the bona fide residence test or the physical presence test, you can exclude from income a portion of your income earned overseas. The foreign earned income exclusion amount will be $120,000 in 2023 ($112,000 in 2022).
Foreign gift reporting. For gifts from a nonresident alien individual or foreign estate, reporting on Form 3520 is required only if the aggregate amount of gifts from that person exceeds $100,000 during the tax year. This number does not generally adjust for inflation. However, for gifts from foreign corporations and foreign partnerships, the reporting threshold amount will be $18,567 in 2023 ($17,339 for 2022).
Exit tax for renouncers. One of the significant tax implications of renouncing one’s U.S. citizenship is the so-called “exit tax,” which is triggered if any of the below are true:
- You fail to certify to the IRS that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation.
- Your net worth is $2 million or more on the date of your expatriation.
- Your average annual net income tax for the 5 years ending before the date of expatriation is more than a specified amount that is adjusted for inflation. For 2023, this amount will be $190,000 ($178,000 for 2022).
Also, for 2023, the amount that would otherwise be includible in the gross income of any individual subject to the exit tax will become reducible by $821,000 ($767,000 for 2022).
Inflation Adjustments for Other Tax Items
The standard deduction. While this is an item with broader scope than the international tax domain, the standard deduction often becomes relevant for U.S. expats without sufficient foreign exclusion or foreign tax credits to fully reduce their U.S. tax liability. The basic standard deduction for 2023 will be:
Joint return - $27,700 ($25,900 for 2022)
Single - $13,850 ($12,950 for 2022)
Head of household - $20,800 ($19,400 for 2022)
Married filing separate - $13,850 ($12,950 for 2022)
Lifetime estate and gift tax exclusion amount. For gifts made and estates of decedents dying in 2023, the exclusion amount will be $12,920,000 ($12,060,000 for gifts made and estates of decedents dying in 2022).
Gift tax annual exclusion. For gifts made in 2023, the gift tax annual exclusion will be $17,000 ($16,000 in 2022). The annual exclusion for gifts to noncitizen spouses will be $175,000 ($164,000 for 2022).
