On Thursday, October 13, The US Bureau of Labor Statistics (BLS) released the most current report on inflation. It showed how it’s remaining stubbornly high at 8.2% in September, which is barely down from September’s 8.3% report for August. The high number came in above the 8.1% markets had expected.
Despite the steep rises in prices, there may be some good news: the amount of taxes you owe will go down in 2023. Federal law allows the Internal Revenue Service (IRS) to permit taxpayers to keep more of their money thanks to the higher prices. On Tuesday, October 18, the federal tax agency issued a 2023 tax year inflation adjustment.
IRS Makes Tax Inflation Adjustments
While the cost of virtually everything has risen over the last year, pushing inflation rates to historic 40-year highs, the IRS is offering some relief to taxpayers. In January, workers may see a bump in their take-home pay. Every year, the tax agency adjusts tax rates for inflation, but you’re likely to feel the tax changes this time because it’s running so high.
The IRS’s changes impact individual income tax brackets, deductions, and credits for 2023.
So, what are some of the more common changes likely to impact most Americans?
If you don’t itemize your deductions, you likely reduce your income tax liability by using the standard deduction. The standard deduction for married couples filing jointly will increase by $1,800 to $27,700 — that’s up 7% from the 2021 tax filing season. For those who are single or married filing separately, the standard deduction increases $900 to $13,850. Heads of households will see it rise $1,400 to $20,800, a 7.2% increase.
If you make over $578,120, or $693,750 for married couples filing jointly, the tax bracket remains the same at 37%. The IRS announced the following changes:
- 35% for incomes over $231,250 or $462,500 for married couples filing jointly
- 32% for over $182,100 or $364,200
- 24% for over $95,375 or $190,750
- 22% for over $44,725 or $89,450
- 12% for over $11,000 or $22,000
- 10% for anything lower
Earned Income Tax Credit
In 2023, the earned income tax credit will increase to $7,430 for individuals with at least three children. It was previously $6,935.