Here’s some good news if your wages haven’t kept pace with inflation: you’ll save more money on your taxes in 2023. Every year the IRS re-evaluates its tax brackets and makes changes to reflect the country’s cost of living. On Tuesday, the IRS announced major changes to combat inflation, even more than usual.
The federal agency updated more than 60 tax provisions, some of which will ultimately raise standard deductions and income limits in tax brackets for both individuals and couples filing jointly—giving workers who qualify for the adjustments lower tax rates and more take-home pay beginning in January. Other updates to the tax code also redraw tax exemptions and limits on flexible spending accounts, Earned Income Tax Credit, estates and gift-giving.
Here’s what to know:
What this means for individuals
For single taxpayers and married individuals filing separately, the standard deduction—the dollar limit that taxpayers can subtract from their taxed income—boosts to $13,850 for 2023, up $900 from 2022. The maximum tax rate remains at 37%. Here’s how much individuals will pay in taxes according to their incomes:
What this means for married couples
For married couples filing their taxes jointly, the standard deduction in 2023 rises to $27,700, an $1,800 increase. Here’s how much couples will pay in taxes according to their incomes:
Other changes in the tax code
Other changes to certain widely-used tax credits could be helpful for low to moderate-income filers. The Earned Income Tax Credit, which helps working-class filers get a tax break, will raise its claim limit to $7,430 for households with at least three children, a jump of nearly $500. Flexible spending accounts—which allow workers to set aside money for medical expenses and eventually withdraw those savings before incurring taxes—will have a higher contribution limit of $3,050 next year, compared to this year’s limit of $2,850.
Wealthy Americans will have some opportunities to qualify for asset tax exemptions in 2023. The IRS will exempt up to $12.92 million before taxing a deceased person’s estate, a jump of more than 7% from last year. Tax-exempt gifts will also increase from a value limit of $16,000 to $17,000 in 2023.
For low-income individuals who may usually opt out of filing tax returns because they aren’t required to, the IRS in a separate announcement last week said that doing so is the only way for people to claim benefits they were eligible for in 2021 but didn’t accept. More than nine million families may be eligible to claim missed stimulus payments, Child Tax Credit and other benefits, so the agency has extended the filing portal until Nov. 17.