What is the standard deduction and how does it work?

Every tax season, taxpayers have a decision to make about tax deductions. Should they take the standard deduction established by the IRS on their federal tax return? Or should they itemize their deductions?

Here’s a closer look at the standard deduction and how it works.

Key takeaways

• Taxpayers typically take deductions on their federal tax returns with the goal of reducing their taxable income and lowering their total tax bill.
• Taxpayers can choose to take the standard deduction, which is a set dollar amount, or to itemize their deductions.
• One reason to opt for the standard deduction is that it’s typically the more convenient option. 
• Standard deductions may be higher for some groups, including people who are 65 or older, visually impaired or classified as dependents. 

The standard deduction is a fixed dollar amount set by the IRS that a taxpayer can deduct from their adjusted gross income (AGI) to help lower the federal tax they owe. The IRS defines AGI as “gross income minus adjustments to income.” Gross income is made up of things like wages and other income, capital gains, and retirement distributions. Adjustments include things like alimony payments, student loan interest and contributions to a retirement account.

Taxpayers are entitled to take the full standard deduction even when their own deductions total less than that amount.

In general, the IRS adjusts the standard deduction for inflation each year.

2022 standard deduction

Standard deductions are based on a person’s filing status. If you know yours, check the table below. If you need help, visit the IRS. 

2023 standard deduction

The IRS has updated the 2023 standard deduction amounts in preparation for next year’s filing season. The deduction was increased from the 2022 amount for each of these filing status categories.

If you choose to take the standard deduction, that exact amount is subtracted from your AGI. Then your total tax owed is calculated based on your tax rate. 

If taking the standard deduction lowers your AGI to a certain threshold, part of your taxable income could fall into a lower tax bracket. That could help lower your taxes even more.

While many people qualify for the standard deduction, exceptions can include the following:

• A taxpayer who’s filing their taxes as married filing separately, and who has a spouse who itemizes their tax deductions
• A person filing a return for less than 12 months because of changes in their accounting time period
• A person with dual-status alien or nonresident status during the year, with some exceptions 
• Trusts, common trust funds, partnerships or estates

Certain people may be eligible for higher standard deductions. As the IRS explains, the standard deduction “varies according to your filing status, whether you’re 65 or older and/or blind, and whether another taxpayer can claim you as a dependent.”

Here’s more information about taxpayers in those situations.

65-and-over taxpayers

Taxpayers 65 or older can generally claim a larger standard deduction. According to the IRS, “You’re allowed an additional deduction if you’re age 65 or older at the end of the tax year.”

Visually impaired taxpayers

If a taxpayer is blind or partially blind, they may qualify for a higher standard deduction. To verify their visual impairment, the IRS may require them to submit a letter from their optometrist.

Dependent taxpayers

At times, someone who can be claimed as a dependent on another person’s tax return may also file their own return—for example, when they file for a refund of withheld taxes. In this type of situation, a dependent taxpayer may qualify for a higher standard deduction.

Recent IRS data estimates that 87.3% of all taxpayers claimed the standard deduction for the 2020 tax year. But for some, itemizing deductions could help save money on their tax bill.

By itemizing, a taxpayer might be able to reduce their AGI—and, in turn, their total tax owed—by deducting the actual amount of their eligible expenses from their taxable income. While taxpayers can only itemize up to certain limits set by the IRS, the total of their deductions may equal more than the standard deduction. 

Common itemized deductions include state and local taxes, mortgage interest, charitable contributions, and some medical expenses. 

Itemizing can create a more time-consuming tax-filing process and may require additional paperwork. But, ultimately, it could help save a taxpayer money. 

Each year, the IRS adjusts the standard deduction amount that taxpayers are allowed to deduct from their AGIs. This deduction can help people lower their overall tax bills without having to itemize each deduction.

Understanding how deductions work can help taxpayers when filing season comes around. Learn more about claiming deductions and the tax filing process.