IRS’s New Tax Brackets:
What Does It Mean For You?
The Internal Revenue Service's inflation adjustments will reduce the tax burden for many Americans next year. Some will be better off than others.
Based on federal law, the IRS makes annual inflation adjustments to dozens of tax laws, including the standard deduction and income-tax rates.
Because of the recent string of record inflation, considerable changes have been made for the year 2023.
Even with higher tax-bracket levels, people who earn increases next year to offset inflation could face heftier tax bills in 2023, says Omaha financial advisor Ben Henry-Moreland.
"This isn't exactly a taxpayer gift." It's more like keeping us in the same boat," says Morris Armstrong, a tax adviser and enrolled agent in Cheshire, Conn.
Additionally, the IRS enhanced the earned income tax credit, the alternative minimum tax exemption, and the amount workers can deduct for health flexible spending accounts.
For the 2022 tax year, you will only be taxed 10% of your income up to a limit of $10,275, then 12% up to a maximum of $41,775, and so on.
However, because the income levels for tax brackets have been raised for 2023, if your total income does not change between 2022 and 2023, you will pay less in taxes.
Here's an example: If your taxable income is $75,000 in 2022, you will owe $12,117 in taxes. If it continues at $75,000 in 2023, you'll only owe $11,807.50 - a difference of more than $300.
In 2023, the standard deduction for single filers will be $13,850. For joint filers, the standard deduction is $27,700.