() — Inflation can drive prices up, but it could also help increase your salary starting next year.
Thanks to inflation adjustments to the 2023 federal income tax brackets and other provisions announced by the Internal Revenue Service IRS this week, more of your 2023 salary could be subject to lower tax rates than this year, and you could deduct larger amounts of income.
“You will most likely see more in your paycheck starting in January [debido a los ajustes de inflación del IRS, que] tend to result in less withholding for a given income level,” said Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting.
Since the changes don’t take effect until 2023, they won’t have any effect on your 2022 tax return due in mid-April of next year.
Here are some of the big changes the IRS is making:
Income tax brackets
There are seven different federal tax rates at which income is taxed: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. And the range of income subject to each of those rates is called the tax bracket.
The more you earn, the higher your “cap” rate, that is, the rate at which your last dollar is taxed.
IRS inflation adjustments assume an increase of approximately 7% in each bracket.
Starting next year, these are the income amounts that will be applied to each rate:
10% applies to the first $11,000 of income for single filers ($22,000 for married couples filing jointly).
- 12% applies to income over $11,000 ($22,000 for joint filers)
- 22% applies to income over $44,725 ($89,450 for joint filers)
- 24% applies to income over $95,375 ($190,750 for joint filers)
- 32% applies to income over $182,100 ($364,200 for joint filers)
- 37% applies to income over $578,125 ($693,750 for joint filers)
standard deduction
The standard deduction, which most filers claim, will increase by $900 to $13,850 for singles and by $1,800 to $27,700 for married couples filing jointly.
The standard deduction is the dollar amount that those who do not itemize deductions can subtract from their adjustable gross income before federal income tax is applied.
Health Flexible Spending Account Contribution Limits
Next year you can contribute up to $3,050 to a flexible spending account (FSA), which can cover some health expenses not covered by health insurance. That money is deductible, so it will reduce the amount of taxes that are deducted from your payroll. If your employer’s plan also allows you to carry over unused portions of your FSA amount, the maximum allowed carryover will be $610, $40 more than this year’s maximum.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) allows low-income workers to keep more of their pay. However, they won’t receive the money until they file their 2023 taxes in early 2024.
The IRS increased the maximum amounts that can be claimed for the EITC by approximately 7%.
For example, a taxpayer with three or more eligible children could get up to $7,430 in EITC in 2023, up from $6,935 this year.
