IRS releases inflation adjustments for 2023 — here’s how it could impact your tax bill
Against a backdrop of high inflation and rising costs, Americans could expect some tax relief next year. The Internal Revenue Service (IRS) announced the inflation-adjusted tax brackets earlier this month, and the changes could mean some will pay a lower tax bill when filing in 2023.
The IRS makes these adjustments every year, but because of high inflationthe adjustments are bigger this time.
Here’s how inflation will affect standard deductions in 2023, which all filers can claim unless they choose to itemize their deductions:
- For married couples, the standard deduction will increase to $27,700, up $1,800 from 2022.
- For single taxpayers and married individuals filing separately, the standard deduction will increase to $13,850, up $900 from 2022.
- For heads of households, the standard deduction will be $20,800, up $1,400 from 2022.
“Federal income tax brackets are tied to federal income tax rates, which are adjusted for inflation on an annual basis,” said Jody Padar, head of tax strategy at April Tax. Solutions. “Next year taxpayers may feel like they got a little tax relief even though their taxable income remains essentially the same. will be adjusted.”
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Americans could see up to $1,000 in tax savings, expert says
The tax adjustment could bring some relief to workers whose wages have not with inflation. A Bank of America survey survey in July found that 71% of U.S. employees believed the cost of living had outpaced their salary growth, up from 58% in February.
“Taxpayers should have a lower tax burden next year due to the 7% increases in standard deduction and tax brackets,” said Dean Kaplan, financial expert and president of The Kaplan Group. “Tax savings could range from $400 to over $1,000 for married couples filing jointly.
“These savings may not cover all the cost increases people are experiencing, but every little bit counts, especially for the nearly 50% of Americans who have less than $10,000 in savings,” Kaplan continued. .
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Inflation spurs social security payment and wage increases
The IRS adjustment follows the Announcement from the Social Security Administration (SSA) that benefits will increase by 8.7% in 2023. This will impact approximately 70 million Americans by increasing benefit payments by an average of $140 per month starting in January.
Inflation has also had an impact on salary increases, according to a recent Salary.com survey. According to the survey, about half (48%) of employers are replacing the predominant 3% increase with a median increase of 4% across all employee categories. A quarter of employers said they plan to grant raises in the range of 5-7% in 2023.
“2023 promises to be another banner year for employees seeking pay increases,” said Chris Fusco, senior vice president of compensation at Salary.com. “For perspective, in 2020, as the pandemic took hold, just under 10% of employers forecast a higher salary budget increase than the previous year – in 2023, almost half of employers are forecasting budgets higher wages.”
If you’re looking to reduce your expenses in an uncertain economic environment, you might consider using a personal loan to pay off your debt at a lower interest rate, saving you money each month. Visit Credible to find your personalized rate without affecting your credit score.
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