Many Americans are struggling with the inflation crisis as salaries fail to keep up with rising prices. But here’s the silver lining: the IRS tax bracket income are about to change in 2023, so you may save on taxes even if you keep earning the same wages.
Let’s examine the IRS tax bracket changes from 2022 to 2023.
The U.S. tax system has different rates, a.k.a tax brackets, for different income thresholds. These brackets range from 10% for the lowest wages to 37% for the highest incomes.
Keep in mind, however, that a tax bracket applies not to your entire taxable income, but to increments that fall into that bracket. For example, even if you earn $120,000 a year, you’ll only pay 10% for the portion of income under that bracket, 12% on the next bracket’s portion, etc.
Because passing a certain taxable income threshold instantly puts you in a higher tax bracket, a small addition to your income may cost you thousands of dollars in extra taxes.
The IRS has announced many changes coming up in 2023 to keep up with inflation-related “bracket creep”. Without adjustments to current inflation rates, employees who receive pay increases could climb into a higher tax bracket even despite having the same, or even lower, purchasing power and standard of living.
The IRS sets different income thresholds for single taxpayers vs. married couples filing joint returns. For example, single filers will fall in the 22% tax bracket for 2023 if they earn up to $44,726 of taxable income, while joint filers in the same bracket may earn up to $89,451.
So how will IRS tax bracket changes from 2022 to 2023 impact taxpayers? Let’s say you’re a single person earning $40,000 in taxable income per year. You get an annual pay increase to $42,000, which would shift you from the 22% to the 24% tax bracket in 2022. However, in 2023, the income threshold for the 22% bracket is $44,726, which leaves you in the same bracket.
Find out which tax bracket you will fall under in 2023 to estimate how much tax you may pay for that year.
The standard tax deduction is the non-taxable part of your income that the IRS subtracts from your total income, a rule that lowers your income tax. How much you can claim in standard deduction depends on your income, age, whether you’re single or married filing jointly, and other factors.
As a taxpayer, you can choose to claim your standard deduction or itemize deductions to include all your qualifying expenses in your tax statement. Most filers opt for the standard deduction since they don’t record every tax-deductible expense for their tax return.
Every year, the IRS updates the standard deduction amount according to that year’s inflation rates. For 2023, the standard deduction will be:
Keeping up with IRS requirements is a challenge for many Americans. If you’re facing an IRS audit, tax penalties, levies, or any tax problems, contact Levy & Associates Tax Consultants. Our expert team of CPAs, tax attorneys, and former revenue officers is here to help you find creative solutions to tax complications.
Make sure you’re prepared for IRS tax bracket changes 2022-2023. Call our office in Delray Beach, Florida, at (561) 325-6881, our Lathrup Village, Michigan, location at (313) 447-1704, or contact us online to learn more about our tax services.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.