IRS releases inflation-adjustments for 2023 taxes

The Internal Revenue Service released inflation-adjusted tax brackets for next year on Tuesday. The changes could boost your paycheck in 2023.

Why it matters: Cost of living adjustments like these, and recent ones for Social Security payments, are now crucial in an era of soaring inflation.

Details: The standard deduction for married couples filing jointly in 2023 is $27,700, up $1,800 from the prior year.

  • For single taxpayers, the standard deduction rises rose to $13,850, up $900.
  • While tax rates remain the same, the income limits for each tax rate are different.
  • That means your top tax rate might have gone down. For example, if you were earning $90,000 a year in 2022 your top tax rate was 32%. Next year it’s 24%.

Zoom out: The IRS adjusts tax brackets every year to ward off “bracket creep” — when your salary rises to keep up with inflation, propelling you into a higher tax bracket.

  • This is easy to understand if you go back and look at salaries from decades ago. Say the IRS tax brackets were still set at a 1980 level, then someone earning $34,000 a year — a tidy sum at the time — would face a 49% tax rate. That would be considered extremely regressive in 2022.
  • Congress codified the annual inflation adjustments as part of the Reagan tax cuts in 1981; they went into effect in 1985. Before then, a period when inflation was high, brackets weren’t adjusted.

Go deeper: How inflation can lower your taxes

.

Leave a Comment

Your email address will not be published.