Major Tax Bracket Changes Are on the Way
By: James Flippin · March 08, 2023 · Reading Time: 3 minutes
Inflation soared last year. Although many Americans saw wage increases as a result, these typically did not keep pace with rising prices. With the deadline to file 2022 taxes just over a month away, any upcoming tax burden may feel particularly heavy this year.
The good news is that the IRS takes inflation into account when it sets annual parameters that affect taxes paid. This means that 2023 federal income tax brackets have been adjusted, so higher income levels will qualify for lower tax rates.
Inflation hit 40-year highs last year, so adjustments to various 2023 tax provisions are substantial. The IRS instituted a 7% year-over-year change in federal income tax brackets — higher than 2022’s annual inflation rate of 6.5%.
In 2022, a single person could qualify for the lowest 10% tax bracket maximum if taxable income came in at $10,275. Now, in 2023, this threshold has been bumped up to $11,000. Since these changes apply to 2023 taxes, they pertain to returns due in 2024.
The changes don’t end there. The IRS is providing tax relief in other areas too.
Taxpayers will get to take a higher standard deduction on their 2023 return. Married couples filing joint tax returns will be able to deduct $27,700 — $1,800 more than in 2022. Single filers will see a similar near — 7% increase. This will translate to tax savings for approximately 90% of Americans who currently elect to take the standard deduction.
Contributions limits for retirement savings will also get a boost. In 2023, employees can opt to sock away $22,500 in their 401(k). Permitted annual additions to IRAs will increase to $6,500.
Although inflation has leveled off in recent months, it has yet to show substantial signs of decrease. So as you keep adjusting to elevated prices, take solace in knowing you may get to keep more of your 2023 earnings to do so.
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