Here’s some good news if your wages haven’t kept pace with inflation: you’ll save more money on your taxes in 2023. Every year the IRS re-evaluates its tax brackets and makes changes to reflect the country’s cost of living. The IRS made major adjustments to fight inflation on Tuesday.
The federal agency updated more than 60 tax provisions, some of which will ultimately raise standard deductions and income limits in tax brackets for both individuals and couples filing jointly—giving workers who qualify for the adjustments lower tax rates and more take-home pay beginning in January. The tax code has also been updated to remove tax exclusions, limit flexible spending accounts and Earned Income Credit. It also includes gift-giving and estates.
Here’s what to know:
This is what it means for you
For single taxpayers and married individuals filing separately, the standard deduction—the dollar limit that taxpayers can subtract from their taxed income—boosts to $13,850 for 2023, up $900 from 2022. The highest tax rate is still 37%. Here’s how much individuals will pay in taxes according to their incomes:
- If you make $11,000 or less: You’ll pay 10% of your gross income in taxes
- Make between $11,0001 – $4,725: You’ll pay $1,100 + 12% of gross income over $11,000
- Make between $44,726 – $95,375: You’ll pay $5,147 + 22% of gross income over $44,72
- Make between $95,376 – $182,100: You’ll pay $16,290 + 24% of gross income over $95,375
- Make between $182,101 – $231,250: You’ll pay $37,104 + 32% of gross income over $182,100
- Make between $231,251 – $578,125: You’ll pay $52,832 + 35% of gross income over $231,250
- If you make $578,126 or More: You’ll pay $174,238.25 + 37% of gross income over $578,125
The implications for married couples
The standard deduction for married couples who file their taxes together rises to $27.700 in 2023, an increase of $1,800. Here’s how much couples will pay in taxes according to their incomes:
- If you make $22,000 or less: You’ll pay 10% of your gross income in taxes
- Make between $22,001 – $89,450: You’ll pay $2,200 + 12% of gross income over $22,000
- Make between $89,451 – $190,750: You’ll pay $10,294 + 22% of gross income over $89,45
- Make between $190,751 – $364,200: You’ll pay $32,580 + 24% of gross income over $190,750
- Make between $364,201 – $462,500: You’ll pay $74,208 + 32% of gross income over $364,20
- Make between $462,501 – $693,750: You’ll pay $105,664 + 35% of gross income over $462,500
- If you make $693 751 and more: You’ll pay $186,601.50 + 37% of gross income over $693,75
Additional changes made to the tax code
Some tax credits that are commonly used could see some changes. This would be beneficial for filers of low and moderate income. Earned income tax credit, which provides tax breaks to working class filers, will increase its limit to $7.430 for families with three or more children. This is a nearly 500-fold jump. Flexible spending accounts—which allow workers to set aside money for medical expenses and eventually withdraw those savings before incurring taxes—will have a higher contribution limit of $3,050 next year, compared to this year’s limit of $2,850.
In 2023, wealthy Americans may be eligible for exemptions from asset taxes. The IRS will exempt up to $12.92 million before taxing a deceased person’s estate, a jump of more than 7% from last year. Gifts that are exempt from tax will go up in value, going from $16,000 to $17,000 by 2023.
For low-income individuals who may usually opt out of filing tax returns because they aren’t required to, the IRS in a separate announcement last week said that doing so is the only way for people to claim benefits they were eligible for in 2021 but didn’t accept. The IRS has extended the deadline for filing tax returns to Nov. 17 so that more than 9 million families could be eligible for missed stimulus payments, child tax credit, and other benefits.
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