Science

The IRS is adjusting its rules for inflation. Here is your new tax bracket.

The IRS said Tuesday that it is adjusting many of its rules for 2023 to account for the impact of inflation, from the personal income tax bracket to the standard deduction.

The higher limit is intended to avoid “bracket creep” due to inflation, which can push workers into higher tax brackets who, despite their standard of living, have received growth in higher tax brackets.

The IRS makes such adjustments annually, but High inflation of this year This means that many changes are more significant than in a typical year. Americans are grappling with stubbornly high inflation, which is eating away at their purchasing power as average wage gains lag behind a sharp rise in prices. Higher provisioning thresholds can provide relief to some taxpayers who fall in lower tax brackets as a result.

Here are the changes announced Tuesday by the IRS, with inflation-adjusted provisions taking effect for the 2023 tax year. Taxpayers will file their 2023 tax return in early 2024.

standard deduction

The standard deduction is used by people who do not report their taxes, and it reduces the amount of income on which you must pay taxes.

  • For married couples filing jointly, the standard deduction will increase from $25,900 to $27,700 in the current tax year. This is an increase of $1,800 or a jump of 7%.
  • For single taxpayers and married individuals filing separately, the standard deduction will increase from $13,850 in 2023 to $12,950 currently. That is, an increase of about 6.9 percent.
  • Heads of households will see their standard deduction increase this year from $19,400 to $20,800 in 2023. That is, an increase of 7.2%.

tax bracket

The IRS is raising the tax bracket to about 7% for each type of tax filer, such as those who file separately or as married couples. The top marginal rate, or the highest tax rate based on income, remains 37% for individual single taxpayers with incomes over $578,125 or married couples with incomes over $693,750.

The minimum rate remains 10%, which will affect individuals earning $11,000 or less and married couples earning $22,000 or less. Below is a chart with the new tax brackets.

flexible spending accounts

Flexible spending accounts allow workers to put money in one account, to the extent permitted by the IRS, that can be used to pay for medical expenses. Since the money is taken from their accounts on a pre-tax basis, it provides tax savings for many workers.

The new IRS limit for FSA contributions for 2023 is $3,050, a roughly 7% increase from the current tax year’s limit of $2,850.

Because employees set their FSA limits in the fall, ahead of the new calendar year, people will use this new IRS limit to decide on their contributions over the next few weeks.

earned income tax credit

The IRS said the maximum amount for claiming the earned income tax credit would be $7,430 for families with at least three children, compared to $6,935 in the current tax year.

big gift exclusion

People can give up to $17,000 in gifts in 2023 without paying taxes on the money, up from the current year’s $16,000.

property tax limit

The wealth of wealthy Americans will also get a big break in 2023. The IRS will exempt up to $12.92 million from estate taxes, up from $12.06 million for people who die in 2022 — a 7.1% increase.

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