Inflation may be pushing up prices, but it could also help boost take-home pay starting next year.
Thanks to inflation adjustments to the 2023 federal income tax bracket and other provisions announced by the Internal Revenue Service this week, Much of your 2023 wages may be subject to lower tax rates than this year, potentially allowing you to deduct more income.
“It is very likely that salaries will increase from January. [due to the IRS inflation adjustments, which] Mark Luscombe, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, said:
No impact as changes will not apply until 2023 upon 2022 tax returns due by mid-April 2022 next year.
Below are some of the major changes for the IRS. making:
There are seven federal income tax rates levied on earned income: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The range of income subject to each tax rate is called the tax amount.
The higher your income, the higher your “top” tax rate. This is the tax rate charged on the last dollar.
The IRS inflation adjustment will be an increase of about 7% in each bracket.
Starting next year, the income amounts applicable to each rate are:
10% applies to the first $11,000 income of a single filer ($22,000 if a couple files jointly).
12% applies to income over $11,000 ($22,000 for joint filers).
22% applies to income over $44,725 ($89,450 for joint filers).
24% applies to income over $95,375 ($190,750 for joint filers).
32% applies to income over $182,100 ($364,200). for joint filers)
37% applies to income over $578,125 ($693,750 for joint filers).
The standard deduction claimed by most applicants increases from $900 to $13,850 for singles and from $1,800 to $27,700 for couples applying jointly.
The standard deduction is the amount a person who does not list a deductible can deduct from their adjustable gross income before federal income tax is applied.
Next year, you will be able to donate up to $3,050 to your flexible spending account. This can help cover out-of-pocket medical expenses not covered by health insurance. That money is withheld, so you can reduce the amount of tax that is withheld from your paycheck. If the employer’s plan also allows him to carry forward any unused portion of the FSA amount, the maximum amount allowed to carry forward is $610, $40 higher than the maximum for the year.
of Income Tax Credit (EITC) allows for low-income workers to keep their salaries.but they don’t pay up to They will file their 2023 taxes in early 2024.
The IRS has raised the largest amount You can claim an EITC of about 7%.
For example, eligible taxpayers with three or more eligible children can get up to $7,430 in EITC in 2023, up from $6,935 this year.