Standard Deduction in Taxes and How It's Calculated

Standard Deduction

Investopedia / Ellen Lindner

What Is Standard Deduction?

The term standard deduction refers to the portion of income not subject to tax that can be used to reduce your tax bill. The Internal Revenue Service (IRS) allows you to take the standard deduction if you do not itemize your deductions using Schedule A of Form 1040 to calculate taxable income. The amount of your standard deduction is based on your filing status, your age, and whether you are disabled or claimed as a dependent on someone else’s tax return.

Key Takeaways

  • The standard deduction is the portion of income not subject to tax that can be used to reduce your tax bill.
  • The IRS adjusts the standard deduction each year for inflation.
  • The amount of your standard deduction is based on your filing status, age, and other criteria.
  • Taxpayers can choose between a standard deduction and itemized deductions.
  • Most individuals choose the standard deduction because they don’t have to keep track of every possible qualifying expense.

Understanding the Standard Deduction

Income tax is the amount of money that the federal or state government takes from your taxable income. It is important to note that taxable income and total income earned for the year are not the same. This is because the government allows a portion of the total income earned to be subtracted or deducted to reduce the income that is taxed. Taxable income is usually smaller than total income due to deductions, which help lower your tax bill.

The IRS allows taxpayers to choose between two different types of deductions—a set of itemized deductions and the standard deduction. The standard deduction is a certain figure set by the government that can be subtracted from your taxable income. When you claim this figure on your annual tax return, it reduces the amount of income on which you're taxed. The standard deduction is updated each year for inflation and reflects your tax filing status.

You can take advantage of an additional standard deduction if you are 65 or over at the end of the tax year (you are considered to be 65 on the day before your 65th birthday). People who are blind may claim an additional deduction, provided they are blind on the last day of the tax year. If you can be claimed as a dependent on someone else's tax return, your standard deduction for 2022 is limited to the greater of $1,150 or your earned income plus $400 (up to the amount of the basic standard deduction for your filing status). A dependent's standard deduction rises to $1,250 in 2023 or the earned income plus $400.

Standard deduction amounts for the most current tax years are listed below.

To qualify as blind, you must have a certified letter from an eye doctor stating that you have non-correctable 20/200 vision in your best eye or that your field of vision is 20 degrees or less.

Special Considerations

Not all taxpayers qualify for the standard deduction, which means these individuals can't claim this deduction. You can't claim it if you:

  • Are married and filing separately and your spouse itemizes their deductions
  • Are a nonresident or dual-status alien during the year
  • File a return for less than 12 months because you change your annual accounting period
  • Are a trust, common trust fund, partnership, or an estate

If the total value of itemized deductions is higher than the standard deduction, you would itemize. Otherwise, you should opt for the standard deduction.

Students and business apprentices from India may be eligible to claim the standard deduction under Article 21 of the U.S.A.-India Income Tax Treaty.

Standard Deduction Amounts

New standard deduction amounts were introduced by the Tax Cuts and Jobs Act at the end of 2017 and nearly doubled the previous amounts. They are set to expire on Dec. 31, 2025.

Here are the standard deduction amounts for the 2022 and 2023 tax years:

Standard Deductions for 2022 and 2023
 Filing Status  2022 Standard Deduction 2023 Standard Deduction
Single  $12,950 $13,850
Married Filing Separately  $12,950 $13,850
Heads of Household  $19,400 $20,800
Married Filing Jointly  $25,900 $27,700
Surviving Spouses  $25,900 $27,700

As noted above, the federal income tax system and some states have higher standard deductions for people who are at least 65 and for people who are blind. Under federal guidelines, if you are 65 or older or you are blind, you can claim an additional standard deduction of $1,400 for 2022 or $1,500 for 2023. Those amounts increase to $1,750 for 2022, and $1,850 for 2023, if you are unmarried and aren't a surviving spouse.

Standard deductions for an individual being claimed as a dependent cannot be more than $1,150 or the total of $400 plus the individual's earned income for 2022. The deduction increases to $1,250 for the 2023 tax year, while the total of $400 plus the earned income stays the same.

You can also increase your standard deduction by the net amount of a disaster loss, but the loss must happen in a federally declared disaster area.

Standard Deduction vs. Itemized Deductions

The biggest reason taxpayers use the standard deduction instead of itemized deductions is that they don’t have to keep track of every possible qualifying expense throughout the year. Many people may also find the standard deduction amount greater than the total that they could reach if they added up all their eligible tax-deductible expenses separately.

This may be especially true given that the Tax Cuts and Jobs Act limited total state and local tax deductions to $10,000. It also limited the mortgage interest deduction on properties bought after Dec. 15, 2017, to the first $750,000 of debt ($375,000 if married filing separately). The limit was $1 million under previous rules.

Whether you use the standard deduction or itemize your deductions is up to you, but you cannot do both. The itemized deduction option allows you to list all your tax-deductible expenses for the year, such as:

What Is the Standard Deduction for 2022?

For tax year 2022, the standard deduction is $12,950 if you file as single or married filing separately. It's $19,400 for heads of household and $25,900 for married filing jointly or qualifying widow(er) taxpayers.

What Is the Standard Deduction for 2023?

For Tax Year 2023, the standard deduction is $13,850 if you file as single or married filing separately. It's $20,800 for heads of household and $27,700 for married filing jointly or qualifying widow(er) taxpayers.

What Can I Deduct if I Take the Standard Deduction?

You can claim above-the-line deductions including retirement plan contributions, health savings account (HSA) contributions, alimony, educator expenses, student loan interest, and health insurance premiums for individual health insurance policies if you are self-employed.

Article Sources
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