How will this affect you? You should find it easier to figure out how much you owe now that the tax brackets have been changed. It should also make it easier and faster for the IRS to process tax returns, and it will let you pay less in taxes.
Let’s talk about these changes in tax brackets in more detail so you know what to expect next year.
Tax Brackets Work in the U.S.
A graduated or progressive tax system is in place in the U.S. That’s not what a flat tax rate or system looks like.
IRS: Here are the new income tax brackets for 2023. https://t.co/0D25LVKfHW
— CNBC (@CNBC) October 31, 2022
Depending on how much money you make each year, you pay different amounts of taxes. Rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37% right now. These are called “bands” or “thresholds.”
How Will 2023 Tax Rates Differ From 2022?
The amount of money you can earn before you have to pay a higher tax rate will go up in 2023. Even if you make more money next year, you’ll probably have to pay less in taxes because of this.
Again, the federal government wants to make this change to make the tax code easier to understand and to help people and families who are having a hard time because of inflation. Many goods and services are getting more expensive, and this should help to stop that.
An Example of This Change
Let’s look at an example of how your tax rate in 2022 could be different from what it is this year. Let’s say that you are single and make $41,776 in 2022. That’s the most you can make to get into the tax bracket where you have to pay 22%.
The IRS released new inflation-adjusted federal tax brackets to prevent what is called “bracket creep,” which occurs when people are pushed into higher income tax brackets or have reduced value from credits and deductions due to #inflation, instead of any increase in real income.
— Tax Foundation (@TaxFoundation) November 10, 2021
You can make as much as $44,726 and still be in the 22% bracket in 2023. That means you can make an extra $2,950 and not pay more in taxes on it in 2023 than you did in 2022.
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You can keep the money you save in any tax bracket. The new tax code could help you save more money the more money you make.
About You File Jointly
You can still benefit from changes to the tax brackets next year if you file your taxes jointly. For example, if you file jointly in 2022 and want to stay in the 22% tax bracket, you can earn up to $83,551 and still stay in that bracket. Next year, you can make up to $89,451 as a couple and stay in the 22% tax bracket. That’s a $5,900 difference.
Because of These Changes, You Will Get to Keep More of Your Money
All of this might sound complicated, but the most important thing to remember is that when the IRS changes the tax code and each bracket next year, you can keep more of your money. No matter which adjusted tax bracket you fall into, you’ll have to pay less to the IRS.
On the IRS website, there are detailed tables that show how the tax brackets work now and how they will change in 2023. You probably have a good idea of how much money you’ll make next year. When you have that number, you can use it in the table to figure out how much more of your money you’ll be able to keep.
It’s good to know that the IRS is taking steps to help the average American deal with inflation, a bear market, and other economic problems. If you pay less in taxes next year, you could save hundreds or even thousands of dollars.
