Americans who are battling with high inflation may be able to keep more of their money in 2023, according to the IRS letter.
The government is providing some relief from the rising expenses of food, gas, and utilities because they are at their highest levels in 40 years.
As in 2023, the IRS will increase the tax brackets for millions of Americans (by around 7%), as well as the basic deductions that can be claimed, which will lower taxable income.
The most recent tax update is relatively large and is likely to have an impact on persons in all income tax bands, even though the government considers changes on an annual basis. In fact, the 2022 inflation adjustment was only 3.1%, making the 2023 updates more than twice as large.
These improvements to the standard deduction look like this:
- The standard deduction for single taxpayers and married couples filing separately will be $13,850, an increase of $900.
- The standard deduction for married couples filing jointly will be $27,700, an increase of $1,800.
- The standard deduction for household heads will be $20,800, an increase of $1,400.
The standard deduction, as defined by the IRS letter, is a precise dollar amount that reduces the amount of income on which you are taxed.
2023 Tax Bracket to Increase Inflation Relief for Americans
The tax brackets are altering, which is another significant change for the 2023 filing year. Therefore, the percentage of taxes due is migrating to other tiers along with the standard deduction, which lowers taxable income and results in savings for millions of Americans.
The top bracket, where a 37% tax rate will be applied, is currently $578,125 and above for individuals and $693,750 and above for married couples filing jointly, which is an increase of about $40,000 from the figures for 2022.
In 2023, income over $231,250 and $462,500 for married couples filing jointly will fall into the 35% tax rate. Individual incomes of $182,100 and married couples’ combined incomes of $364,200 will both trigger the 32% tax rate.
The new threshold for the 24% tax rate in 2023 for single filers is $95,375, and for married couples filing jointly, it is $190,750. For single taxpayers, the 22% tax rate begins at $44,725 and above, and for married couples filing jointly, it begins at $89,450.
The lowest bracket, with a 10% tax rate, will apply to income below these amounts, while the 12% tax bracket will apply to income exceeding $11,000 for individuals and for couples making over $22,000.
The IRS has taken these steps to counteract inflation-related price rises as well as the stagnant purchasing power of American salaries. Inflation-adjusted weekly earnings decreased by over 4% year over year in the past month, according to data from the US Department of Labor, as The New York Times reported.