Each year, the IRS adjusts tax brackets and rates due to inflation and to combat "bracket creep." Bracket creep happens when inflation causes taxpayers to get pushed into higher income tax brackets or reduces the value of credits, deductions, and exemptions.
Bracket creep results in an increase in income taxes without an increase in real income.
The latest update from the IRS brings some great news for taxpayers! According to the latest changes, the standard deduction for 2023 tax year has increase, which means that you'll be able to claim a higher amount on your taxes. This will translate into a significant reduction in your taxable income.
Additionally, federal income tax brackets will increase to account for inflation in 2023
Married Filing Separately
Tax Rate | Income |
|---|---|
10% | Not over $11,000 |
12% | Over $11,000 but not over $44,725 |
22% | Over $44,725 but not over $95,375 |
24% | Over $95,375 but not over $182,100 |
32% | Over $182,100 but not over $231,250 |
35% | Over $231,250 but not over $346,875 |
37% | Over $346,875 |
Head of Household
Tax Rate | Income |
|---|---|
10% | Not over $15,700 |
12% | Over $15,700 but not over $59,850 |
22% | Over $59,850 but not over $95,350 |
24% | Over $95,350 but not over $182,100 |
32% | Over $182,100 but not over $231,250 |
35% | Over $231,250 but not over $578,100 |
37% | Over $578,100 |
In sum, the increase in standard deduction means households will have less income subject to taxes, and the income subject to taxes will be subject to better tax brackets.