Inflation Causes IRS to Raise Tax Brackets, Standard Deduction by 7%
The Internal Revenue Service released tax thresholds for 2023 after inflation adjustments.
Photo:
Ting Shen for The Wall Street Journal
WASHINGTON—The 37% top marginal tax rate will apply to individual income above $578,125 and married couples’ income above $693,750 next year, as those thresholds go up 7% from 2022 under inflation adjustments announced by the Internal Revenue Service on Tuesday.
The standard deduction will climb to $27,700 for married couples and $13,850 for individuals, both also up about 7% from this year, letting taxpayers shield more of their earnings from income taxes. The maximum contribution to a healthcare flexible spending account will climb to $3,050 from $2,850.
Because inflation is higher than at any time in the past four decades, tax code adjustments are unusually high as well. They occur annually under formulas set by Congress and largely match analysts’ projections.
The changes will take effect for tax year 2023 and are generally designed to prevent inflation from causing tax increases. They will show up as lower tax withholding from paychecks as soon as January and thus create larger take-home pay early next year, all else equal. Taxpayers will use the larger brackets and standard deduction to file returns in early 2024.
The adjustments announced Tuesday include the income tax brackets and dozens of other parameters. The estate and lifetime gift tax exclusion will rise to $12.92 million from $12.06 million per person. The annual gift tax exclusion—the amount any person can give to any other without affecting lifetime limits—will climb to $17,000 from $16,000.
Write to Richard Rubin at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
The Internal Revenue Service released tax thresholds for 2023 after inflation adjustments.
Photo:
Ting Shen for The Wall Street Journal
WASHINGTON—The 37% top marginal tax rate will apply to individual income above $578,125 and married couples’ income above $693,750 next year, as those thresholds go up 7% from 2022 under inflation adjustments announced by the Internal Revenue Service on Tuesday.
The standard deduction will climb to $27,700 for married couples and $13,850 for individuals, both also up about 7% from this year, letting taxpayers shield more of their earnings from income taxes. The maximum contribution to a healthcare flexible spending account will climb to $3,050 from $2,850.
Because inflation is higher than at any time in the past four decades, tax code adjustments are unusually high as well. They occur annually under formulas set by Congress and largely match analysts’ projections.
The changes will take effect for tax year 2023 and are generally designed to prevent inflation from causing tax increases. They will show up as lower tax withholding from paychecks as soon as January and thus create larger take-home pay early next year, all else equal. Taxpayers will use the larger brackets and standard deduction to file returns in early 2024.
The adjustments announced Tuesday include the income tax brackets and dozens of other parameters. The estate and lifetime gift tax exclusion will rise to $12.92 million from $12.06 million per person. The annual gift tax exclusion—the amount any person can give to any other without affecting lifetime limits—will climb to $17,000 from $16,000.
Write to Richard Rubin at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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