Income tax brackets for 2023: What are the main changes compared to 2022?
The IRS updated income tax brackets for 2023 and due to high inflation over the past year the thresholds have been significantly raised compared to 2022.
“By failing to prepare, you are preparing to fail” Benjamin Franklin is credited with saying. Getting your tax plan in order for 2023 can save you time and a fair share of money. American taxpayers should to stay up to date on the latest filing requirements and tax burden they could be exposed to. By taking into consideration changes that you will be making, like buying or selling a house, getting married or investing in a retirement account to name a few, can help avoid having a surprise bill from Uncle Sam even get a much bigger tax refund. To help in this endeavor the IRS publishes an update to tax brackets and codes each year.
Americans don’t need to be reminded that prices have been rising, they just need to go to their local supermarket. However, on the bright side, the high inflation over the past year meant that the income thresholds for the seven federal tax brackets got a generous increase. As well the standard deduction that taxpayers can claim when filing. Here’s a look at what has changed for 2023.
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2023 tax brackets
The seven brackets remain the same next year 10%, 12%, 22%, 24%, 32%, 35% and 37% which were set after the 2017 Tax Cuts and Jobs Act. These will be in place through the 2025 fiscal year, after which time, with no Congressional action, the tax rate will increase for all except the lowest.
The income thresholds for tax brackets are adjusted to reflect inflation or the cost of living. This is based on the Chained Consumer Price Index created by the Bureau of Labor Statistics through continuously tracking the changing price of a basket of goods and consumer purchasing behavior in response to that change.
The annual adjustment is designed to avoid “bracket creep” when people are pushed into a higher income bracket or inflation reduces the value of other deductions or credits. So, for example instead of 10% being applied to the first $10,275 of income as in 2022, it will now be applied to the first $11,000 for a taxpayer filing individually in 2023.
Standard deductions in 2023
Also, the standard deduction will increase in 2023 by $900 to $13,850 for single filer or married but filing separately, by $1,400 to $20,800 for head of households and $1,800 to $27,700 for married taxpayers filing jointly.
An additional standard deduction of $1,500 will apply to those who are either 65 and older or blind, and the amount doubles if both apply to a taxpayer in 2023.
Dependents that can be claimed on another person’s tax return for the 2023 fiscal year are limited to a standard deduction of either $1,250 or your earned income plus $400, whichever is greater. However, the total can’t exceed the basic standard deduction for your filing status.
| Filing status | 2022 | 2023 |
|---|---|---|
| Single filers & Married couples filing separately | $12,950 | $13,850 |
| Married couples filing jointly & surviving spouses | $25,900 | $27,700 |
| Head of Household | $19,400 | $20,800 |
Your filing status could save you extra money
There are five categories of filers and conditions apply to the one you should use to file your taxes. The main determiner is your marital status on 31 December of the year for which you are reporting taxes, that will be the one you use for the entire year. It’s possible that more than one filing status applies to you, so the IRS recommends that you use the filing status that will reduce your tax liability the most.
Five US filing statuses:
- Single: For those who are not married, divorced or legally separated.
- Married Filing Jointly: Married couples can choose to file a joint tax return. Widow(er)s can also use this in the year their spouse died.
- Married Filing Separately (MFS): Married couples also have the choice of filing separately if it is more financially beneficial.
- Head of Household (HoH): The IRS cautions not to choose the by mistake and special rules apply to qualify for this filing status. Generally, this status applies if you are not married and must have paid more than half the cost of keeping up a home for yourself and a qualifying person.
- Qualifying Widow(er) with Dependent Child: This status is similar to married filing jointly. It is applicable for only two years and conditions apply.
For more information check the Dependents, Standard Deduction, and Filing Information in Publication 501.
To help taxpayers determine which filing status applies to them the IRS has an online tool “What Is My Filing Status?”
Income taxes are progressive
The tax brackets are progressive, so if you file as a single filer and have a taxable income of $50,000, you don’t pay 22 percent on the whole of your taxable income. You would pay 10 percent on the first $11,000 ($1,100.0), 12 percent on the income between $11,000 and $44,725 ($4,047), and then 22 percent on the remaining $5,275 ($1,160.50) for a total of $6,307.50 as opposed to $11,000. That amount is just under $310 less than you would be taxed for the same income in 2022.
2022 tax bracket income thresholds
| Tax rate | Single filers & MFS | Married filing jointly |
|---|---|---|
| 37% | for incomes over $539,900 | for incomes over $647,850 |
| 35% | for incomes over $215,950 | for incomes over $431,900 |
| 32% | for incomes over $170,050 | for incomes over $340,100 |
| 24% | for incomes over $89,075 | for incomes over $178,150 |
| 22% | for incomes over $41,775 | for incomes over $83,550 |
| 12% | for incomes over $10,275 | for incomes over $20,550 |
| 10% | incomes of $10,275 or less | for incomes of $20,550 or less |
2023 tax bracket income thresholds
| Tax rate | Single filers & MFS | Married filing jointly |
|---|---|---|
| 37% | for incomes over $578,125 | for incomes over $693,750 |
| 35% | for incomes over $231,250 | for incomes over $462,500 |
| 32% | for incomes over $182,100 | for incomes over $364,200 |
| 24% | for incomes over $95,375 | for incomes over $190,750 |
| 22% | for incomes over $44,725 | for incomes over $89,450 |
| 12% | for incomes over $11,000 | for incomes over $22,000 |
| 10% | incomes of $11,000 or less | incomes of $22,000 or less |