These adjustments will ensure that rising prices don’t cause higher taxes.
Finally, some good financial news. The Inland Revenue Service has announced that it’ll raise the income threshold for all tax brackets and increase the standard deduction, allowing Americans to keep more of their money in 2023. These adjustments, which are linked to inflation, will ensure that rising prices don’t cause higher taxes.
According to the IRS statement released on October 18, individuals who earn more than $578,125 will fall under the top 37 percent tax rate, as will married couples with an income over $693,750 who file jointly. These figures represent a 7 percent increase on the 2022 earning thresholds for the top tax tier, to keep in step with the consumer price index.
The other rates are: 35 percent for incomes over $231,250 ($462,500 for married couples filing jointly); 32 percent for incomes over $182,100 ($364,200 for married couples filing jointly); 24 percent for incomes over $95,375 ($190,750 for married couples filing jointly); 22 percent for incomes over $44,725 ($89,450 for married couples filing jointly); 12 percent for incomes over $11,000 ($22,000 for married couples filing jointly).
The lowest marginal rate of 10 percent will apply to single individuals with incomes of $11,000 or less (or $22,000 for married couples filing jointly).
In addition to these changes, the standard deduction — ie the base amount of income that filers can keep tax-free — will rise to $13,850 for individuals and $27,700 for married couples (up $1,800 from the previous year). For heads of households, the standard deduction will be $20,800, up $1,400 from 2022.
As The Washington Post notes, this equates to the biggest adjustment to deductions since 1985, when the IRS started automatically adjusting for inflation every year. American workers will begin to see the difference in their take-home pay in January.
There are a few other pockets of relief in the IRS’s statement. The annual gift tax exclusion — the sum an individual can give to another person without being subject to a tax penalty — is also indexed to inflation, as is the estate tax threshold. In 2023, the gift tax exclusion will rise from $16,000 to $17,000, and the estate tax threshold will increase from $12.1 million to $12.9 million.
