Some Americans will find themselves in a lower tax bracket next year after the Internal Revenue Service announced its 2023 inflation adjustments Tuesday.
What You Need To Know
- Some Americans will find themselves in a lower tax bracket next year after the Internal Revenue Service announced its 2023 inflation adjustments Tuesday
- The IRS tweaks its tax rates annually to help ensure that taxpayers who receive pay raises to keep up with cost-of-living increases aren’t suddenly saddled with a significantly higher tax bill after crossing a threshold
- But with inflation soaring to a 40-year high, the adjustments are more substantial than in a typical year
- The IRS also is raising the standard deductions
The IRS tweaks its tax rates annually to help ensure that taxpayers who receive pay raises to keep up with cost-of-living increases aren’t suddenly saddled with a significantly higher tax bill after crossing a threshold. But with inflation soaring to a 40-year high, the adjustments are more substantial than in a typical year.
The tax-bracket adjustments won’t impact all filers. For example, an individual earning $50,000 will continue to be in the 22% tax bracket. However, someone making $90,000 will see their tax burden fall from 24% to 22%.
But the IRS also is raising the standard deductions, which will have a wider reach. For married couples filing jointly, it will be $27,700, up $1,800 from 2022. For individuals, it will be $13,850, an increase of $900. Heads of households will see their standard deduction rise by $1,400 to $20,800.
Individuals earning $578,125 or married couples who file joint returns for at least $693,750 will be taxed at the top rate of 37%. In 2022, the threshold was $539,000 for individuals and $647,850 for married couples.
For the 35% tax rate, individuals must earn $231,250 — up from nearly 216,000. The cutoff for married couples is $462,500 — an increase from $431,900.
Individuals earning $182,100 or married couples making $364,200 will be taxed at 32%. In 2022, those numbers were $170,050 and $340,100, respectively.
The 24% tax rate will start at $95,375 for individuals — up from $89,075 — and $190,750 for married couples — up from $178,150).
The cutoff for the 22% rate will jump by nearly $3,000 for individuals, up to $44,725, and more than $6,000 for couples, to $89,450.
The 12% tax rate will start at $11,000 for individuals and $22,000 for married couples, increasing from $10,275 and $20,550, respectively. The lowest tax rate of 10% will apply to filers making up to those amounts.
Other tax provisions are also being adjusted. Among them:
The earned-income tax credit for low-income workers who have three or more qualifying children will be worth up to $7,430, up about $500.
The monthly limit on tax-free public transit and parking costs is being raised to $300, $20 higher than this year.
The heirs of wealthy individuals who die in 2023 will not have to pay taxes on the first $12.9 million they inherit. That number was nearly $1 million lower this year.
In another move aimed at blunting the impact of soaring costs for some Americans, the Social Security Administration announced last week millions of Social Security recipients will receive an 8.7% raise in their benefits next year.
the IRS also is raising the standard deductions
