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All The 2023 Inflation Adjustments You Need to Know About
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All The 2023 Inflation Adjustments You Need to Know About
Announcing inflation adjustments is an annual occurrence for the IRS in its efforts to compensate for inflation before the tax filing date. With inflation being the highest it's been in decades, the IRS has announced adjustments to provide some relief to taxpayers from the rising cost of living, including significant changes to the standard deduction and Earned Income tax credit for 2023.
As a taxpayer gearing up to file your 2022 taxes on April 17, 2023, you might have questions like, “What are 2023 inflation adjustments?” or “What’s the standard deduction for 2023 after inflation adjustments?”, or you might be wondering “how much the Earned Income tax credit has increased over the past year?”
Here, we'll give you answers and tell you how to reduce your taxable income.
Key takeaways:
- The standard deduction rate for single filers is up by $900 compared to the 2022 tax year.
- The standard deduction rate for married couples filing jointly is $27,700, up $1,800 from the previous year.
- Inflation adjustment has significantly influenced marginal tax rates.
Table of contents
What is inflation?...Read more
Top 2023 inflation adjustments...Read more
What are the updated IRS 2023 tax brackets?...Read more
Is there an increase to the Earned Income Tax Credit for 2023?...Read more
Is there an increase to the Health Flexible Spending Account and Medical Savings Account for 2023?...Read more
What is inflation?
Inflation is the general increase in price of goods and services in an economy. The US economy has experienced inflation for the past couple of years because of various global and local conditions. In most recent times, such as the pandemic and the ongoing armed conflict in Europe, both of which have led to a historic high level of inflation globally.
To counter rises in the cost of goods and services, the IRS announces inflation adjustments every year. With the effects of inflation reaching new heights, the 2023 inflation adjustments are also the highest ever seen in the IRS’ history.
Top 2023 inflation adjustments
The standard deduction rates have been bumped up significantly. For married couples filing jointly, the standard deduction rate for the 2023 tax filing season is $27,700, which is an $1,800 increase. For single filers, it's up $900 to $13,850. If you are filing as the head of the household, you will be able to take $20,800 as a standard deduction, which is up $1,400 from 2022.
What are the updated IRS 2023 tax brackets?
The tax brackets have seen adjustments for 2023, too, except for the top tax rate, which remains unchanged at 37% for single taxpayers with income over $578,125 for single filers and $693,750 for married couples.
For taxpayers in the bracket where they pay 35% of their income in tax, the income threshold is now increased to $231,250 per year for single filers. For those paying 32%, the threshold is now over $182,100. For the 24% tax rate, the income amount has been increased to $95,375.
For the 22% percent tax bracket, the IRS has bumped the income amount to $44,725. You’ll be taxed at 12% now, if your income exceeds $11,000.
The 2023 tax brackets have also been updated for married couples filing jointly. The combined income for the 35% bracket is now $462,500. The threshold for the 32% tax rate’s bracket increased to $364,200, and the threshold for the 24% tax rate has been bumped to $190,750.For the 22% rate, the threshold is now over $89,450, and if you and your spouse’s combined income is over $22,000, your tax rate is 12%.
It's important to keep these updated tax rates in mind as you plan your finances and prepare for tax season. Don't forget to consult with a tax professional if you have any questions or concerns. To make it easier, you can use FlyFin to find your taxable income within your tax bracket.
Is there an increase to the Earned Income Tax Credit for 2023?
Yes there is! This tax credit, also known as the EITC, is aimed at supporting low and moderate income households, and the IRS has significantly increased the amount of the credit. The maximum 2023 EITC is $7,430, an increase of $495 from the 2022 amount.
Is there an increase to the Health Flexible Spending Account and Medical Savings Account for 2023?
For the 2023 tax year, the IRS has raised both of these:
- The limit is now $3,050 for employees making a contribution from their salaries to a Health Flexible Spending Account.
- The Medical Saving Account (MSA) contribution limit is now $2,650 (up by $200) and $3,950 (up by $250) for self-only coverage.
- The maximum out-of-pocket expense amount is up to $5,400 for self-only coverage.
- For family coverage, the annual deductible must be no less than $5,300 and no more than $7,900 for the 2023 tax year. These numbers are up by $350 and $500, respectively, from 2022. The out-of-pocket limit for family coverage is now $9,650, up by $600 from 2022.
To save the most possible on your taxes, make sure to be aware of these inflation adjustments and check to see whether you qualify for the Earned Income Credit. To file your tax return accurately before the tax filing deadline, use the expert CPA advice available in the FlyFin app.
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