The Internal Revenue Service announced Wednesday higher federal income tax brackets and standard deductions for next year, which will be a welcomed cost of living adjustment for many Americans.
Why it matters: The new brackets for 2023 mean paychecks for many Americans could see a boost, which will help consumers who are being hit hard by inflation and aren't seeing raises that keep pace with price increases.
2022 tax brackets for individualsIndividual rates: Each of the tax brackets' income ranges jumped about 7% from last year's numbers. Here's a breakdown of last year's income and rates:
- $10,275 or less: 10% marginal rate
- $10,276 to $41,775: 12%
- $41,776 to $89,075: 22%
- $89,076 to $170,050: 24%
- $170,051 to $215,950: 32%
- $215,951 to $539,900: 35%
- $539,901 or more: 37%
Married couples filing jointly brackets jumped about 7% as well. Here's a breakdown of last year's income and rates:
- $20,550 or less: 10% marginal rate
- $20,551 to $83,550: 12%
- $83,551 to $178,150: 22%
- $178,151 to $340,100: 24%
- $340,101 to $431,900: 32%
- $431,901 to $647,850: 35%
- $647,851 or more: 37%
State of play: Inflation is hitting Americans hard right now. In September, consumer prices soared and were up 8.2% compared to a year before.
- By adjusting the tax brackets — as the IRS does every year — it is attempting to stop "bracket creep," which happens when inflation pushes taxpayers into a higher income tax bracket without an increase in real income.
Worth noting: The jump could have been higher if not for a tax overhaul signed by former President Trump in 2017, the New York Times reports.
- Republicans at the time tied the adjustments to the chained Consumer Price Index, which tends to rise at a slower pace than the standard CPI.
- In September, chained CPI grew 0.2 percentage points slower than the standard CPI compared to 2021.
Thought bubble via Axios' Emily Peck: These adjustments happen every year but are significant now due to inflation.
- Congress passed these adjustments the last time inflation was high decades ago. It is hard to imagine lawmakers joining together to enact this kind of policy now.
What they're saying: "Inflation adjustments to tax brackets mean that it will be harder for taxpayers to hit those higher brackets, and therefore will have more income taxed at lower rates next year," said Tim Steffen, director of tax planning with wealth management company Baird, in a statement.
Go deeper: IRS releases inflation-adjustments for next year's taxes
- How inflation can lower your taxes
Editor's note: This story was first published on Oct. 19, 2022.
Amid soaring inflation, the IRS this week announced higher federal income tax brackets and standard deductions for 2023.
The agency has boosted the income thresholds for each bracket, applying to tax year 2023 for returns filed in 2024.
These brackets show how much you'll owe for federal income taxes on each portion of your "taxable income," calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
Higher standard deduction
The standard deduction will also increase in 2023, rising to $27,700 for married couples filing jointly, up from $25,900 in 2022. Single filers may claim $13,850, an increase from $12,950.
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Other tax provisions adjust
The IRS also boosted figures for dozens of other provisions, such as the alternative minimum tax, a parallel system for higher earners and the estate tax exemption for wealthy families.
There's also a higher earned income tax credit, bumping the write-off to a maximum of $7,430 for low- to moderate-income filers. And employees can funnel $3,050 into health flexible spending accounts.
While the agency hasn't yet released 2023 limits for 401(k) and individual retirement accounts, experts predict IRA limits will jump to $6,500 for savers under 50.