IRS To Put More Money In Your Paycheck Next Year, Thanks To Inflation

American families have felt the pinch for months on end now, with inflation rates reaching their highest levels in 40 years. But as families work to make ends meet while dealing with high costs of groceries, gas, rent, health care, and more, the Internal Revenue Service (IRS) has actually thrown us a little bit of a bone.

While inflation continues to crush us, the IRS is enacting inflation-related tax bracket changes for 2023 that could allow you to take home bigger paychecks and make tax returns less brutal.

What is the IRS doing?

On Tuesday, October 18, the IRS announced new marginal tax bracket adjustments, among many other changes, for the 2023 tax year to account for inflation. The announcement includes shifts in the standard deduction and shifting tax brackets.

According to NPR, these adjustments are done yearly, “but this year’s announcement comes amid heightened economic concerns about high inflation and a potential recession.”

This year's changes will likely mean savings for people across all income brackets.

How does what the IRS is doing help me?

According to Axios, these yearly adjustments are to ward off what experts call “bracket creep.” This term is used when someone’s salary rises to keep up with inflation, but in doing so, they’re propelled into a higher tax bracket.

A change in the tax bracket can be devastating to some people, especially those who just barely reach the next tax bracket. Tax brackets, marked by income, mean the higher your yearly income, the more taxes you owe come tax time.

The problem is that when salary increases are done to offset some of the cost of living increases due to inflation, on paper it looks like people are making more money and then should pay the allotted tax percentage that their new bracket requires. But that income increase doesn’t necessarily mean they’re making more money — especially when everything from rent to food and gas prices has increased and “real wages” are falling.

Studies have shown that this is happening. A previous survey showed that in February, 58% of people said that they felt their cost of living outpaced their salary and wages. By July, that number had grown to 71%.

The new changes should allow people to take home more money in their paychecks — a way to ward off “bracket creep” and the walloping effect of inflation.

What are the new changes to standard deductions?

• The standard deduction for single taxpayers rose to $13,850, up $900 from last year
• The standard deduction for a married couple filing jointly rose to $27,700, up $1,800 from last year
• The heads of households' standard deduction rose to $20,800, up $1,400 from last year

What are the new changes to the marginal tax bracket for 2023?

The changes for single individuals, per the IRS, are as follows:

• If you make $11,000 or less a year, your taxes owed will be 10% of your taxable income
• If you make $11,001 to $44,725 a year, your taxes owed will be $1,100 plus 12% of the excess over $11,000
• If you make $44,726 to $95,375 a year, your taxes owed will now be $5,147 plus 22% of the excess over $44,725
• If you make $95,376 to $182,100 a year, your taxes owed will be $16,290 plus 22% of the excess over $95,375
• If you make $182,101 to $231,250 a year, your taxes owed will be $37,104 plus 32% of the excess over $182,100
• If you make $231,251 to $578,125 a year, your taxes owed will be $52,832 plus 35% of the excess over $231,250
• If you make $578,126 or more, your owed taxes will be $174,238.25 plus 37% of the excess over $578,125

The changes for married individuals filing jointly, per the IRS, are as follows:

• If you earn $22,000 or less, your taxes owed will be 10% of your taxable income
• If you earn $22,001 to $89,450 a year, your taxes owed will be $2,200 plus 12% of the excess over $22,000
• If you earn $89,451 to $190,750 a year, your taxes owed will be $10,294 plus 24% of the excess over $89,450
• If you earn $190,751 to $364,200, your taxes owed will be $32,580 plus 24% of the excess over $190,750
• If you earn $364,201 to $462,500 a year, your taxes owed will be $74,208 plus 32% of the excess over $364,200
• If you earn $462,501 to $693,750 a year, your taxes owed will be $105,664 plus 35% of the excess over $462,500
• If you earn over $693,750 a year, your taxes owed will be $186,601.70 plus 37% of the excess over $693,750

The changes for head of households, per the IRS, are as follows:

• If your earn less than $15,700 a year, your taxes owed will be 10% of your taxable income
• If you earn $15,701 to $59,850 a year, your taxes owed will be $1,570 plus 12% on the excess over $15,700
• If you earn $59,851 a year to $95,350 a year, your taxes owed will be $6,868 plus 22% of the excess over $59,850
• If you earn $95,351 to $182,100 a year, your taxes owed will be $14,678 plus 24% of the excess over $95,350
• If you earn $182,101 to $231,250 a year, your taxes owed will be $35,498 plus 32% of the excess over $182,100
• If you earn $231,251 a year to $578,100 a year, your taxes owed will be $41,226 plus 35% of the excess over $231,250
• If you earn over $578,100 a year, your taxes owed will be $172,623.50 plus 37% of the excess over $578,100

There are a ton of other changes — including changes to alternative minimum tax, estate tax exemption, the earned income tax credit (EITC), and flexible spending account limits. Check it all out here.

When does this change take effect?

These tax changes take effect for the 2023 tax season, which will generally be filed in 2024.