But if your salary hasn’t kept up with inflation, there might be a bit of relief come tax day in 2024. On Tuesday, the IRS released its inflation-adjusted guidelines for 2023, readjusting the tax brackets.
For instance, the top tax rate of 37% stays the same, but the amount of income to qualify for it rose from $539,900 to $578,125. Meanwhile, the lowest rate of 10% will apply to individuals making $11,000 or less, up from $10,275 in 2022.
The bracket adjustment offers more wiggle room for middle and lower income earners, who have traditionally made up the bulk of filers. In 2022, incomes over $41,775 and below $89,075 were taxed at 22%; in 2023, that threshold moves to above $44,725 and below $95,375.
Filers will also be able to deduct more from their taxable income, with the standard deduction rising to $13,850 for individuals and $27,700 for married couples. The earned income tax credit, which is targeted at lower-earning families, also sees a big boost with families eligible for a $7,430 credit. Conversely, if you’re planning on inheriting a fortune in 2023, it’ll have to be worth more than $12,920,000 to be eligible for the estate tax.
It’s yet another aspect of American fiscal life seeing an unusual boost from post-vaccine era inflation. In September, the Consumer Price Index — a key indicator of inflation — rose to 8.2% year-over-year, with core inflation (which excludes volatile food and energy prices) rising to 6.6%. That’s a 40-year high, and one that most wages haven’t kept up with.
Similar to other measures, the IRS adjustments are meant to reflect the economic environment, and not necessarily provide relief. Most Social Security recipients will see their monthly checks increase by $140 starting in January to reflect cost of living increases. Those checks are also tied to inflation, and will put more money in retirees’ pockets — but those retirees will still be paying inflated prices in the meantime. Meanwhile, inflation and the economy are weighing heavily on voters heading into the midterm elections.
The latest brackets will show up for 2023 taxes, meaning the returns that you file in 2024. As the IRS still struggles with a reduced budget and an increased pandemic workload — and subsequent backlog — that might be little relief for the millions of taxpayers who saw their refund checks delayed for months.
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