Everyone can surely use a little more take-home pay and based on some new changes that affect 2023 tax brackets, some may get just that.
On October 18, 2022, the IRS released new tax brackets for all seven income tax tiers, increasing the top income level for each tier and thus lowering tax brackets for many individuals as they head into income tax preparation time.
This adjustment, which goes into effect on January 1, 2023, has been made in light of the current inflation rate which is the highest it has been in nearly 40 years.
Tax bracket thresholds were increased by 7%.
Doesn't Apply Until 2023
While these changes do not apply to employee tax returns filed in 2023 which are based on 2022 income, those earners who will drop down a bracket will get some tax help and at least begin seeing a slight increase in take-home pay at the start of the year.
The only drawback is that top-bracket earners may see an increase in their social security payroll taxes, as the maximum social security earning level was increased by 9%.
Review Changes For Retirement Savings
With this added income making it into their pockets, workers who receive more pay starting in January 2023 should review their paycheck withholding amounts and 401(k) plans.
For some, the tax help change offers the perfect opportunity to contribute more to retirement savings or to invest more into a health savings account.
With inflation rates as they are, many can simply enjoy the benefit of some added funds in their pockets every month as well.
Standard Deduction Increased
In addition to these 2023 tax bracket adjustments, the IRS has also increased the standard tax deduction by $900 for individuals, $1800 for married couples, and $1400 for heads of households.
It is said to be the largest increase in the standard deduction prior to income tax preparation time since 1985 when the tax system was first adjusted according to inflation rates.
What Is The Bottom Line With These Changes?
What does it all mean for the average taxpayer as income tax preparation time rolls around again?
With regard to tax returns filed in 2023, those should be filed according to 2022 income brackets and the current standard deduction as the increased standard deduction starts with 2023 income.
Yet that first paycheck in 2023 should end up adjusted to the new 2023 tax brackets, bringing a little more cash home for many individuals.
Since every person’s tax withholding might be different, the IRS recommends that earners review withholding with their tax help expert to determine how much additional income they are likely to see and how it might affect their retirement and health savings.
Those with more questions about their 2023 tax return and other tax preparation concerns should reach out to a local tax help specialist!