The Internal Revenue Service (IRS) changed its tax brackets for 2023 to factor in high inflation, and it could bring tax savings for some Americans, experts said. (iStock)
Amid high inflation and rising costs, Americans could be in store for a slight tax relief next year. The Internal Revenue Service (IRS) announced the inflation-adjusted tax brackets earlier this month, and the changes could mean that some will pay a smaller tax bill when they file in 2023.
The IRS makes these adjustments every year but because of high inflation, the adjustments are more significant this time.
Here’s how inflation will impact standard deductions in 2023, which all tax filers can claim unless they choose to itemize their deductions:
- For married couples, the standard deduction will increase to $27,700, up $1,800 from 2022.
- For single taxpayers and married individuals filing separately, the standard deduction will increase to $13,850, up $900 from 2022.
- For heads of households, the standard deduction will be $20,800, up $1,400 from 2022.
“The federal income tax brackets are tied to federal income tax rates, which are adjusted for inflation on a yearly basis,” Jody Padar, the head of tax strategy at April Tax Solutions, said. “Next year, taxpayers may feel like they received a bit of tax break even though their taxable income essentially stays the same. In 2023, even your paycheck should get a little fatter as withholding rates will be adjusted.”
If you are looking to reduce your expenses amid high inflation, you could consider using a personal loan to pay down debt at a lower interest rate, saving you money each month. You can visit Credible to find your personalized interest rate without affecting your credit score.
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Americans could see up to $1,000 in tax savings, expert says
The tax adjustment could provide some relief to workers whose salaries have not kept up with inflation. A Bank of America survey conducted in July said that 71% of American employees felt that the cost of living has outpaced growth in their salary, up from 58% in February.
“Taxpayers should have a lower tax burden next year due to the 7% increases in the standard deduction and tax brackets,” Dean Kaplan, a finance expert and president of The Kaplan Group, said. “Tax savings could range from $400 to over $1,000 for married couples filing jointly.
“These savings may not cover all the cost increases people are experiencing, but every little bit helps, especially for the nearly 50% of Americans who have less than $10,000 in savings,” Kaplan continued.
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Inflation spurs Social Security payment and salary bumps
The IRS adjustment follows the Social Security Administration’s (SSA) announcement that benefits will increase by 8.7% in 2023. This will impact about 70 million Americans by increasing benefit payments by an average of $140 per month beginning in January.
Inflation has also impacted salary increases, according to a recent Salary.com survey. Roughly half (48%) of employers are replacing the predominant 3% raise with a median raise of 4% across all employee categories, the survey said. A quarter of employers said they planned to give increases in the range of 5 to 7% in 2023.
“2023 promises to be another banner year for employees seeking salary increases,” Chris Fusco, senior vice president of compensation at Salary.com, said. “For perspective, in 2020, as the pandemic was taking hold, just under 10% of employers planned a higher salary budget increase than the prior year – in 2023, almost half of employers are planning higher salary budgets.”
If you are looking to reduce your expenses amid economic uncertainty, you could consider using a personal loan to pay down debt at a lower interest rate, saving you money each month. Visit Credible to find your personalized rate without affecting your credit score.
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