The IRS recently released information regarding shifts in the tax code for the 2023 tax year.
Amid historic inflation, the IRS has announced higher federal income tax brackets and standard deductions for 2023. The announcement may mean savings for Americans in all income brackets — welcome news as rent, gas, and grocery prices soar to a 40-year high[i].
That said, here are a few key changes to note as we enter a new tax year:
- Federal income tax brackets will increase by roughly 7%[ii], allowing taxpayers to shield more of their hard-earned income from taxation. For example, single taxpayers earning $44,726 to $95,375 will pay $5,147 plus 22% of the amount over $44,725. Married taxpayers filing jointly making $89,451 to $190,750 will pay $10,294 plus 22% of the amount over $89,450. Outside those brackets? You can find your 2023 tax bracket information here[iii].
- The standard deduction is increasing from $25,900 in 2022 to $27,700 for married couples filing jointly and from $12,950 to $13,850 for single taxpayers.
- The earned income tax credit amount will jump to $7,430 for qualifying taxpayers[iv] with three or more children, up from $6,935 for tax year 2022.
- The new IRS limit for FSA contributions for 2023 is $3,050[v], an increase of 7% from 2022’s threshold of $2,850.
- Taxpayers will be able to give up to $17,000 in gifts in 2023 without paying taxes, up from $16,000 in 2022.
- The IRS will exempt up to $12.92 million from the estate tax, up from $12.06 million for people who died in 2022 — another increase of roughly 7%.
- The tax changes come days after the government announced that millions of Social Security recipients will get an 8.7% boost[vi] in their benefits in 2023 — an average of $140 per month.
- Keep in mind that these changes are for the 2023 tax year and will have no impact on the taxes you file next April. That said, now is the perfect time to begin considering tax strategy as the 2023 tax year approaches.
In our current inflationary environment, these changes and boosts in benefits are small but strategic ways you can mitigate inflation’s lingering impact. That said, if you have questions or would like to discuss other ways to keep your investments on track amid a less-than-ideal market, reach out and let’s find a time.
Now is a great time of year to review your portfolio and adjust for the year ahead. We are always here to help, so don’t hesitate to give us a call.
[i] Vanek Smith, S. (2022, October 18). Npr.org. You can run, but you can’t hide: Inflation is busting budgets, and killing joy too. [Online] Available at: You can run, but you can’t hide: Inflation is busting budgets, and killing joy too : NPR
[ii] Shalvey, K. (2022, October 19). Abc30.com. Soaring inflation may mean lower tax bills for some as IRS raises brackets. [Online] Available at: IRS adjusts 2023 tax brackets amid soaring inflation, meaning lower bills for some – ABC30 Fresno
[iii] Dore, K. (2022, October 19). Cnbc.com. IRS: Here are the new income tax brackets for 2023. [Online] Available at: IRS: Here are the new income tax brackets for 2023 (cnbc.com)
[iv] (2022). Irs.gov. Who Qualifies for the Earned Income Tax Credit. [Online] Available at: Who Qualifies for the Earned Income Tax Credit (EITC) | Internal Revenue Service (irs.gov)
[v] Picchi, A. (2022, October 21). Cbsnews.com. The IRS just changed its tax brackets. Here’s the impact on your taxes. [Online] Available at: The IRS just changed its tax brackets. Here’s the impact on your taxes. – CBS News
[vi] Nesbit, J. (2022, October 13). Blog.ssa.gov. Social Security Benefits Increase in 2023. [Online] Available at: Social Security Benefits Increase in 2023Social Security Matters (ssa.gov)