IRS Adjusts 2023 Tax Rates for Inflation: How It Will Impact Your Finances
In light of relentless inflation that has been exacting a toll on every aspect of life, there is some relatively good news for taxpayers. The Internal Revenue Service (IRS) recently announced the tax year 2023 annual inflation adjustments for more than 60 tax provisions — these could help Americans save money via raised tax brackets.
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While the IRS announces inflation adjustments annually, with the four-decade high inflation this year, “the shift in rates is far more notable: an increase of about 7%,” The New York Times reported. In comparison, the inflation adjustment factor for 2022 was only about 3.1%, according to MarketWatch.
In turn, the tax items for tax year 2023 include a standard deduction for married couples filing jointly for tax year 2023 rising to $27,700 — up $1,800 from the prior year, according to an IRS press release.
For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, while for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022, according to the release.
The IRS added that for tax year 2023, for marginal rates, the top tax rate will remain 37% for individual single taxpayers with incomes greater than $578,125 (or $693,750 for married couples filing jointly), which is an increase compared to last year’s $539,900 and $647,850 figures, respectively, per The Hill.
The lowest rate is 10% for single individuals with incomes of $11,000 or less, and $22,000 for married couples filing jointly.
The other brackets are:
35% for incomes over $231,250, or $462,500 for married couples filing jointly.
32% for incomes over $182,100, or $364,200 for married couples filing jointly.
24% for incomes over $95,375, or $190,750 for married couples filing jointly.
22% for incomes over $44,725, or $89,450 for married couples filing jointly.
12% for incomes over $11,000, or $22,000 for married couples filing jointly.
Other adjustments include those for the Earned Income Tax Credit — the maximum amount is $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935 for tax year 2022, the IRS said.
And the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $300, up $20 from the limit for 2022, the IRS added.
Despite a drop in gas prices and rate hikes, inflation was still higher than expected in September. The Bureau of Labor Statistics (BLS) released its Consumer Price Index (CPI) on Oct. 13, and the all-items index for the 12 months ending September increased 8.2%, driven largely by increases in the shelter, food and medical care indexes, as GOBankingRates previously reported.
The figure was higher than anticipated, as Bloomberg expected the CPI — which measures what consumers pay for goods and services including clothes, groceries, restaurant meals, recreational activities and vehicles — to have decreased to 8.1% in September.
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“The transition toward a slower pace of rate hikes, or even lower rates following the expected 75 basis point move on November 2, is still elusive until the Fed is convinced that victory against inflation is complete — or, that something breaks as cracks in the global financial fault line deepen,” Quincy Krosby, chief global strategist for LPL Financial, told GOBankingRates. “Whichever comes first.”
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This article originally appeared on GOBankingRates.com: IRS Adjusts 2023 Tax Rates for Inflation: How It Will Impact Your Finances
