The Internal Revenue Service (IRS) is adjusting its 2023 tax brackets and increasing deductions to counter the soaring costs of goods and services caused by inflation.
The IRS announced Tuesday that tax brackets would increase by roughly 7% in 2023 as part of the agency’s annual inflation adjustments.
September’s CPI report showed broad-based inflation across most sectors of the economy, the Bureau of Labor Statistics said.
With frequent hotter-than-expected data showing annual inflation at 8.2% and core inflation at 6.6%, its highest level since 1982, economists and policymakers expect to see no signs of cooling until the end of 2023 or early 2024, based on current U.S. inflation forecasts.
In total, the federal agency is making 60 tax provision updates, including adjustments to the tax rate schedules and updates to standard deductions for single and married filers, the IRS said.
The IRS said that the standard deduction for married couples filing jointly will increase to $27,700, up $1,800 from the previous year, and for single filers, it will increase by $900 to $13,850.
Those increases mark an acceleration from the previous year’s standard deduction hikes, which were $800 for married filers and $400 for single ones. For heads of households, the standard deduction will be $20,800 for the tax year 2023, up $1,400 from the year before.
Marginal tax rates are also being adjusted due to inflation. Marginal tax rates will remain at 37% for individual single taxpayers with incomes greater than $578,125 and $693,750 for married couples.
The other rates include:
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly)
- 32% for incomes over $182,100 ($364,200 for married couples filing jointly)
- 24% for incomes over $95,375 ($190,750 for married couples filing jointly)
- 22% for incomes over $44,725 ($89,450 for married couples filing jointly)
- 12% for incomes over $11,000 ($22,000 for married couples filing jointly)
The IRS is adjusting the Earned Income Tax Credit amount up from $6,935 to $7,430 for the tax year 2023.
Several categories were unaffected by the recent IRS indexing, including personal exemption, itemized deductions, and modified adjusted gross income amount.
According to the IRS, the personal exemption will remain at zero, as it was for 2022.
“This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act,” the agency noted.
More details about these annual adjustments can be found here: Revenue Procedure 2022-38.
