Ayyyeee… What’s Goodie Everyone. So I got some tea and it involves changes to the income threshold by the IRS which can save you money during tax season.
The Internal Revenue Service will allow Americans to shield more of their income from taxes in 2023 due to higher inflation, the agency announced on Tuesday, raising income thresholds for all tax brackets and increasing the standard deduction.
The top tax rate of 37 percent will apply to individuals with income exceeding $578,125 and married couples filing jointly with income more than $693,750. Both of those amounts are up 7 percent from 2022 to track with increases in the consumer price index. The standard deduction which is the baseline amount of income that filers can collect tax free will increase to $13,850 for individuals and $27,700 for married couples. It is the largest adjustment to deductions since 1985, when the IRS began annual automatic inflationary adjustments.
The tax system changes follow a large cost of living adjustment, or COLA, announced by the Social Security Administration last week to compensate for inflation. Social Security benefits are set to jump 8.7 percent in 2023, the greatest such increase in four decades.
The annual gift tax exclusion which he maximum amount one person can give another without incurring a tax penalty will rise to $17,000 from $16,000. The estate tax threshold, often used by the wealthiest Americans to shield inherited assets from levies, will jump to $12.9 million from $12.1 million.
Certain parts of the tax code are linked to inflation to prevent rising prices from causing higher taxes. Taxpayers will see the new figures reflected in withholding statements on paychecks beginning in January, with workers securing more take home pay. The IRS will also allow parents adopting a child to shield $15,950 per child from taxes, up from $14,890 in 2022.
Credit: The Washington Post. The Wall-Street Journal.