Tax brackets that the Internal Revenue Service updated a few months ago will now go into effect, giving taxpayers a chance to keep more of their money amid increasing inflation.
The adjustment in the IRS’s tax brackets will prevent taxpayers from getting pushed into a higher bracket due to them getting paid more money in response to inflation. These increases in the tax brackets mark the largest automatic adjustment since 1985, when the tax system’s core features were first indexed to inflation.
The standard deduction, which the IRS defines as the specific dollar amount that reduces the amount of income on which a person is taxed, will increase by $900 this year to $13,850 for single taxpayers. For married taxpayers filing jointly, the standard deduction for this tax year will increase by $1,800 to $27,700, according to the IRS.
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The ranges for marginal rates are also increasing this year, with the top tax rate of 37% being for individual taxpayers with incomes greater than $578,125 or $693,750 for married couples filing jointly, an increase from last year, when it was $539,900 or more for single taxpayers or $647,850 or more for married filers. The other tax rates have also had their income levels increased, with the lowest of the rates, 10%, being for single people with incomes of $11,000 or less or for married couples filing jointly with incomes of $22,000 or less.
In addition to these new tax brackets, taxpayers can take advantage of the expanded amount they can contribute to their 401(k) plans in 2023, which will increase to $22,500, an additional $2,000 from the year prior. The cap on annual contributions that taxpayers can make to their individual retirement arrangements will also increase to $6,500, up from the limit of $6,000 in 2022, according to the IRS.
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The adjustments made by the IRS come as the United States continues to battle increasing inflation. Similarly, the Social Security Administration increased its Supplemental Security Income payments in 2023 by 8.7% to keep up with inflation, the highest adjustment made by the SSA since 1981.
