The IRS has revised its income tax brackets in 2023 due to inflation, which will likely reduce the amount of money you will owe in taxes.
As part of its annual adjustments based on inflation, the IRS increased the income thresholds for its tax brackets by thousands of dollars. These changes are effective for the 2023 tax year. The U.S. has a progressive, or graduated, tax system, so income isn't taxed a flat rate. Instead, it's taxed at differing rates — 10%, 12%, 22%, 24%, 32%, 35% and 37% — as it rises past certain thresholds, or tax brackets.
For the 2022 tax year, you'll only be taxed 10% of your income up to a maximum of $10,275, after which it would be taxed at 12% for a maximum of $41,775, and so on.
Here's a simplified example: If your taxable income is $75,000 in 2022, you'll owe $12,117 in taxes. But if it stays at $75,000 in 2023, you'll only owe $11,807.50 — a difference of over $300.
The IRS also increased the standard deduction for single filers by $900, for a total of $13,850 in 2023. For joint filers, the amount increases by $1,800, for a total standard deduction of $27,700. The standard deduction — taken by about 90% of all U.S. tax filers — is a flat amount that reduces your taxable income for a given year.
Additionally, the IRS increased the earned income tax credit, the alternative minimum tax exemption, and the amount workers can deduct for contributions to health flexible spending accounts. More details can be found on an IRS webpage about the changes.Sign up now: Get smarter about your money and career with our weekly newsletter
