In October, the IRS announced the higher limits for the federal income tax bracket and standard deductions. For the year 2023, we will be seeing those higher federal income taxes and standard deductions take effect. This gives many Americans the potential to increase their 2023 take-home pay to shield their income from the IRS.
What’s the Intent?
The reason for these changes is to prevent a trend known as “bracket creep” which happens when taxpayers are pushed into higher-income tax brackets even though their purchasing power is essentially the same because of the effects of inflation on most everyday goods.
In times of painfully high inflation, such adjustments are more significant and impactful for taxpayers. For much of 2022, inflation hovered around a four-decade high, peaking at 9.1% in June and falling to 7.1% in November – still about three times pre-pandemic levels. The tax brackets are shifting upwards by about 7% this year.
The Bracket Changes
For individuals in 2023 the tax brackets are as follows:
37%: incomes greater than $578,125
35%: incomes over $231,250
32%: incomes over $182,100
24%: incomes over $95,375
22%: incomes over $44,725
12%: incomes over $11,000
10%: incomes of $11,000 or less
For those married filing jointly, the amounts are as follows:
37%: incomes greater than $693,750
35%: incomes over $462,500
32%: incomes over $364,200
24%: incomes over $190,750
22%: incomes over $89,450
12%: incomes over $22,000
10%: incomes of $22,000 or less
Other Tax Provisions
Other provisions have been increased by the IRS, including the earned income tax credit threshold, with families now entitled to $7,430 if they have three or more qualifying children. It is an increase from $6,935 for the tax year 2022.
In addition, employees can contribute more to their health flexible spending accounts, with the maximum contribution increasing to $3,050.
Wrap Up
These new tax brackets and provisions are being put in place to try to limit the effects that taxpayers have been feeling from the rising inflation from 2022. If you need professional assistance with any of your finances, give us a call.