Have you been looking for ways to save money as inflation has taken more of your paycheck this year? You may be in luck. The Internal Revenue Service (IRS) announced over 60 tax provisions in their cost-of-living adjustments for 2023 in Revenue Procedure 2022-38.
Highlighted in Revenue Procedure 2022-38 are increased marginal tax rates, standard deductions, earned income tax credits, among many others. The trigger for this was the rising rate of inflation across the country, the highest we have seen in 40+ years. The 7% increase in the standard deduction and tax rates are to match the inflation rate.
Marginal Tax Rates for 2023 are:
- 37% for incomes over $578,125 ($693,750 for married couples filing jointly);
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly);
- 32% for incomes over $182,100 ($364,200 for married couples filing jointly);
- 24% for incomes over $95,375 ($190,750 for married couples filing jointly);
- 22% for incomes over $44,725 ($89,450 for married couples filing jointly); and
- 12% for incomes over $11,000 ($22,000 for married couples filing jointly).
How could this mean more money in your pocket? Well, if your income stays the same year over year, your marginal tax rate could be lower in 2023, meaning less money withheld from your paycheck and more in your pocket.
Increases to the standard deduction and earned income tax credit (EITC) were also made. For single filers, the standard deduction rose to $13,850 (up $900) and double that for married couples filing jointly, i.e., $27,700 (up $1,800). If you take advantage of the standard deduction (do not itemize your deductions), this could result in a decrease in your taxable income. The amount of the EITC has increased from $6,935 in 2022 to $7,430 in 2023, a 7.1% increase.
Among the 60 provisions, some other notable adjustments are:
- Contribution limits to health flexible spending arrangements are up to $3,040 vs. $2,850 in 2022;
- Alternative Minimum Tax exemption is up 7.1% to $81,300, compared to $75,900 in 2022, and will start phasing out at $578,150;
- Foreign earned income exclusion rose from $112,000 to $120,000, a 6.7% increase; and
- The adoption credit of 7.1% has increased to $15,950 in 2023 from $14,980 in 2022.
These increased tax brackets and uptick in credits should help taxpayers all over the country as many are looking for ways to combat inflation, and this should do just that.
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