Tax season in USA: what will the standard deduction be for 2023?
The IRS has changed the minimum level of money that Americans will need to have to begin paying tax this year.
The term ‘standard deduction’ is the earnings threshold below which you will not have to pay tax on your income. This either means that you can reduce your tax bill, or it could free you from income tax entirely.
The standard deduction increases in 2023 is $13,850 for single filer or married but filing separately, $20,800 for head of households and $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. The amount for those that are unmarried and not a surviving spouse will be $1,850 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.
|Single filers & Married couples filing separately||$12,950||$13,850||+$900|
|Married couples filing jointly & surviving spouses||$25,900||$27,700||+$1,800|
|Head of Household||$19,400||$20,800||+$1,400|
How is this change calculated?
The Social Security Administration uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate the annual COLA. However, under the Tax Cuts and Jobs Act of 2017 (TCJA), the IRS now uses the Chained Consumer Price Index (C-CPI) to index tax provisions. The latter is generally outpaced by the former with the IRS annual adjustment coming in at nearly 7 percent versus the COLA increase of 8.7 percent for 2023.
What is the difference between deductions and tax credits?
Credits are used to reduce your eventual tax liability. Once your tax balance has been calculated credits, after deductions have been applied, credits subtract a set dollar amount from your outstanding balance which reduces your bill or increases your refund.