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- The IRS released inflation-adjusted tax brackets for 2023; the income threshold for each bracket has gone up.
- High earners will benefit the most — those earning above $182,000 have the potential to save thousands.
- If your income was at the low end of your previous bracket, you are more likely to save.
Inflation, as we all know, is high — and for many workers, wages have not kept pace. However, the new inflation-adjusted 2023 tax brackets, released last week by the IRS, may provide some relief.
With higher thresholds for income tax brackets and a higher standard deduction, you may benefit from this adjustment next year.
The chart below shows a summary of the changes in tax brackets for single and married joint filers:
Single (2022) | Single (2023) | MFJ (2022) | MFJ (2023) | |
10% | $0 to $10,275 | $0 to $11,000 | $0 to $20,550 | $0 to $22,000 |
12% | $10,275 to $41,775 | $11,000 to $44,725 | $20,550 to $83,550 | $22,000 to $89,450 |
22% | $41,775 to $89,075 | $44,725 to $95,375 | $83,550 to $178,150 | $89,450 to $190,750 |
24% | $89,075 to $170,050 | $95,375 to $182,100 | $178,150 to $340,100 | $190,750 to $364,200 |
32% | $170,050 to $215,950 | $182,100 to $231,250 | $340,100 to $431,900 | $364,200 to $462,500 |
35% | $215,950 to $539,900 | $231,250 to $578,125 | $431,900 to $647,850 | $462,500 to $693,750 |
37% | $539,900 or more | $578,125 or more | $647,850 or more | $693,750 or more |
High earners benefit the most
While many individuals across multiple tax brackets may benefit from the new brackets, individuals who have taxable income in 2022 at the lower end of either the 37%, 35%, or 32% tax bracket will see the greatest benefit.
For example, if you file married filing jointly and your combined taxable income is $364,200 in 2022 (lower end of the 32% bracket), you will owe approximately $77,007 in federal income taxes.
However, if you have the same combined taxable income in 2023, you will owe approximately $74,208 in federal income taxes (high end of the 24% bracket). This would equate to roughly $2,800 in tax savings for your 2023 taxes.
In addition to the increased thresholds for the income tax brackets, the standard deduction also increased by $900 for single filers and $1,800 for married joint filers; that will help the millions of Americans who take the standard deduction.
What to expect if you're in the lower tax brackets
As you can see from the chart below, there is a good chance that you may see more money in your pocket.
To benefit from the new tax bracket adjustments, your taxable income in 2022 would need to be at the bottom of one of the brackets. If your income is in the middle of the bracket, you likely won't see much tax savings.
Income threshold increase (2022 to 2023) — Single | Potential tax savings 2023 — Single | Income threshold increase (2022 to 2023) — MFJ | Potential tax savings 2023 — MFJ | |
10% | $725 | $14.50 | $1,450 | $29 |
12% | $2,950 | $309.50 | $5,900 | $619 |
22% | $6,300 | $435.50 | $12,600 | $871 |
24% | $12,050 | $1,399.50 | $24,100 | $2,799 |
32% | $15,300 | $1,858.50 | $30,600 | $3,717 |
35% | $38,225 | $2,623 | $45,900 | $4,635 |
The potential tax savings are created if you are at the lower end of a tax bracket in 2022. If that's your situation, in 2023, you could potentially be pushed down into a lower tax bracket (saving you some money).
With a higher standard deduction in 2023, this may be more likely. The tax savings could range from several hundred to several thousand dollars.
This new adjustment also presents an opportunity for more tax-planning strategies to reduce your taxable income to a lower bracket. Consult your tax advisor or CPA for specific strategies.
If you are impacted by these new adjustments, you can expect to see the impact reflected in your paycheck starting in January 2023. You could potentially see less taxes taken out of each paycheck, leaving you with more take-home pay. However, you may want to look over your W-4 forms in the new year to confirm your withholdings in addition to consulting with your tax advisor or CPA.
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