- According to the IRS, skyrocketing inflation could mean smaller tax bills in the 2023 filing season.
- The agency released its inflation-adjusted tax brackets for fiscal year 2023 on Tuesday.
- The adjustments could offer relief, in 2 years, to workers whose wages have not kept up with inflation.
It’s no secret that inflation is taking a bite out of Americans’ wallets right now, and even with wages on the rise over the past year, most wages are not keeping up with skyrocketing prices.
But if your salary is not keeping up with inflation, there may be some relief on tax day in 2024. On Tuesday, the IRS released its inflation-adjusted guidelines for 2023, adjusting tax brackets.
For example, the 37% maximum tax rate remains the same, but the amount of income to qualify has increased from $ 539,900 to $ 578,125. Meanwhile, the lower 10% rate will apply to people earning $ 11,000 or less, up from $ 10,275 in 2022.
Adjusting the bracket offers more room for maneuver for low- and middle-income earners, who have traditionally made up the majority of filers. In 2022, incomes above $ 41,775 and below $ 89,075 were taxed at 22%; in 2023, that threshold moves above $ 44,725 and below $ 95,375.
Filers will also be able to deduct more from their taxable income, with the standard deduction rising to $ 13,850 for individuals and $ 27,700 for married couples. The earned income tax credit, intended for low-income households, also sees a large increase with households eligible for a $ 7,430 credit. Conversely, if you intend to inherit a fortune in 2023, it will have to be worth more than $ 12,920,000 to qualify for the inheritance tax.
It’s yet another aspect of American fiscal life that sees an unusual push from post-vaccine-era inflation. In September, the consumer price index, a key indicator of inflation, rose to 8.2% year-on-year, with core inflation (which excludes food and energy price volatility) rising to 6.6%. That’s a 40-year high, and one that most wages haven’t kept up with.
Like other measures, IRS adjustments are meant to reflect the business environment and not necessarily provide relief. Most Social Security recipients will see their monthly allowances increase by $ 140 starting in January to reflect the rising cost of living. Those checks are also inflation related and will put more money in retirees’ pockets, but in the meantime those retirees will continue to pay inflated prices. Meanwhile, inflation and the economy are weighing heavily on direct voters in the mid-term elections.
The last brackets will show up for the 2023 taxes, which means the returns you will present in 2024. As the IRS still struggles with a low budget and an increase in the pandemic workload – and the resulting backlog – this may be little relief. for the millions of taxpayers who have seen their refund checks have been delayed for months.