There was a slight bit of good news for US individuals this week as the IRS published certain key items that will apply to 2023 income taxes. A client reached out for confirmation of the changes – so let’s cover them here.
Before we dive into details, it’s helpful to understand what is driving these changes. You guessed it – everyone’s favorite topic..inflation. Every year, the IRS considers inflation levels and makes adjustments to various tax provisions. Most years, these changes are nominal but given continued inflation levels, the changes this year are more material. As a result, they have captured the attention of citizens and news media alike!
Let’s dive into some of the major changes
The standard deduction amounts are increasing in 2023. The new deductions (and their changes from 2022) are as follows:
The tax brackets are also increasing. As we have a marginal tax system, the increase in brackets will result in less taxes (assuming a constant level of income) – as more income will be “picked up” in each of the lower brackets.
For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
The other rates are:
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);
12% for incomes over $11,000 ($22,000 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly)
There were over 60 provisions adjusted by the IRS (you can read all of them here). Here are a few of the other highlights:
How about retirement plan levels?
We are still waiting to hear on those amounts (and related income cut offs). Stay tuned – and rest assured we will cover it once released!
While these changes may seem small, every little bit should help as we navigate these high inflationary times.
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