This week, the IRS announced a higher inflation adjustment to help put more money into Americans’ pockets.
This increase considers the growing increase in essential goods like gasoline, rent, and food. This also increased the limit for the federal income tax bracket and standard deductions to avoid a “bracket creep,” which is when taxpayers are pushed into a higher-income bracket even though their purchasing power remains unchanged because of the increased cost of goods.
Here are the changes the IRS announced on Tuesday, which will apply to the 2023 tax year:
Standard Deduction
The standard deduction will rise to $27,700, an increase from $25,900 in 2023 for married couples filing jointly, a 7% bump up. For individuals, the new maximum will be $13,850, an increase from $12,950.
Head of households will see their deduction jump to $20,800 from $19,400, a 7.2% increase.
Tax Bracket for Individuals
The IRS is increasing the tax bracket by about 7% for individual and joint filers.
- 10%: Taxable income up to $11,000 or less
- 12%: Taxable income over $11,000
- 22%: Taxable income over $44,725
- 24%: Taxable income over $95,375
- 32%: Taxable income over $182,100
- 35%: Taxable income over $231,250
- 37%: Taxable income over $578,125
Tax Bracket for Joint Filers
- 10%: Taxable income up to $22,000
- 12%: Taxable income over $22,000
- 22%: Taxable income $89,450
- 24%: Taxable income $190,750
- 32%: Taxable income $364,200
- 35%: Taxable income $462,500
- 37%: Taxable income $693,750
Other Tax Provisions
The IRS increased the thresholds for several other provisions, including the earned income tax credit amount, with families now eligible to receive $7,430 if they have three or more qualifying children. That is up from $6,935 for the tax year 2022.
What are your thoughts on how this can affect your personal and business income tax filing?