(NEXSTAR) – Millions of Americans could take home more pay in 2023 thanks to inflation adjustments to the tax code announced by the IRS Tuesday.
Among the dozens of changes prompted by the soaring costs of food, rent, gasoline and other items, the IRS is hiking the standard deduction for tax year 2023 by roughly 7 percent.
The standard deduction – which reduces the amount of income on which you’re taxed – will go up $1,800 for married couples filing jointly to $27,700. For single taxpayers and married individuals filing separately, the standard deduction will rise $900 to $13,850. Finally, for heads of households, the standard deduction will jump up $1,400 for tax year 2023 to $20,800.
The annual adjustments are set under a formula that accounts for inflation, which is higher than it has been in decades, making this year’s changes especially great. The change to the standard deduction is the largest automatic bump since main features of the tax system were tied to inflation in 1985, according to the Wall Street Journal.
The IRS also announced changes to individual income tax brackets – while the percentages are the same, the earning threshold to enter a new tax bracket is about 7 percent higher. For Americans whose paychecks haven’t gone up in step with inflation, raising the threshold for tax brackets could create additional savings on tax day.
Single taxpayers
| Tax bracket | 2022 | 2023 |
| 10% | $0 | $0 |
| 12% | $10,275 | $11,000 |
| 22% | $41,775 | $44,725 |
| 24% | $89,075 | $95,375 |
| 32% | $170,050 | $182,100 |
| 35% | $215,950 | $231,250 |
| 37% | $539,900 | $578,125 |
Married filing jointly
| Tax Bracket | 2022 | 2023 |
| 10% | $0 | $0 |
| 12% | $20,550 | $22,000 |
| 22% | $83,550 | $89,450 |
| 24% | $178,150 | $190,750 |
| 32% | $340,100 | $364,200 |
| 35% | $431,900 | $462,500 |
| 37% | $647,850 | $693,750 |
One of the principal reasons behind the annual adjustment is to combat “bracket creep,” or the phenomenon in which taxpayers’ incomes start to go up faster than the tax thresholds built into the IRS code, causing tax bills to go up.
Among the other notable changes for tax year 2023 are increases in transportation benefits ($280 to $300), health flexible spending accounts ($2,850 to $3,050) and the maximum Earned Income Tax Credit ($6,935 to $7,430).
The gift exclusion will be $1,000 higher, so people can give up to $17,000 in gifts in 2023 without facing a tax bill on that money.
Taxpayers who inherit an estate from someone who dies in 2023 will see a maximum exemption that is nearly $900,000 higher, at $12,920,000.