anti-inflation (Opens in a new tab)Take-home taxpayer paychecks can increase due to adjustments to standard deductions and all seven levels of federal income tax. These changes are important, because they will allow taxpayers to save more money on taxes while rising prices and inflation continue to erode their purchasing power.
The move by the IRS should offset the pressure on taxpayers who have received cost-of-living wage increases that put them in a new tax bracket while their standard of living remains the same.
These changes will be implemented in 2023.
Adjusted tax brackets
There are seven federal income tax brackets, and each has a different tax rate. Due to new rules put in place by the IRS, each tranche will receive a 7% increase. over here Income ranges per rate (Opens in a new tab).
10% applies to the first $11,000 of income for single applicants ($22,000 for married applicants applying jointly).
- 12% applies to income over $11,000 ($22,000 for subscribers).
- 22% applies to income over $44,725 ($89,450 for subscribers).
- 24% applies to income over $95,375 ($190.750 for subscribers).
- 32% applies to incomes over $182,100 ($364,200 for subscribers).
- 37% applies to incomes over $578,125 ($693,750 for subscribers).
Standard Deductions
The IRS also announced changes to the standard deductions in 2023 as well. Standard deductions are a set dollar amount that reduces the amount of income you are taxed on.
- For single files, the standard deductions will be increased from $900 to $13,850.
- For married couples, the standard deductions will increase from $1,800 to $27,700.
- For heads of household, the standard deductions will increase from $19,400 to $20,800.
Flexible spending accounts
Flexible spending accounts allow you to store money up to a limit set by the IRS to pay for future medical expenses not covered by insurance. Because the money is withheld on a pre-tax basis, it reduces the amount of taxes that is taken from your paycheck.
Next year, the maximum contribution will be raised to $3,050, which is 7% more than the current limit of $2,850. Additionally, if you are allowed to carry unused portions of your total FSA, the maximum of these carryovers will be raised to $40 in the next year, the equivalent of $610.
Received tax revenue
The Earned Income Tax Credit, geared toward low-to-middle-income families, will also see an increase next year, meaning more money for you and your family. The IRS raises the credit for families with more than three children from $6,935 to $7,430, an increase of 7%.
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