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IRS announces new federal tax bracket and standard deductions. Here’s how they affect your family’s tax bill.


A high U.S. inflation rate will increase the size of the standard deduction when workers pay taxes on their 2023 income, according to new inflation adjustments from the Internal Revenue Service.

It will also increase the tax bracket to 7%, according to the annual inflation adjustment that the IRS released this week.

Many tax code regulations – but not all – are indexed for inflation, so these announcements are a repeat event. But as inflation consistently clings to four-decade highs, these annual adjustments take on even more significance.

As inflation consistently clings to four-decade highs, annual adjustments of approximately 7% to the standard deduction are more significant.

Start with the standard deduction, which is what most people use instead of itemizing the deduction.

The standard deduction for individuals and married people filing separately will be $13,850 for tax year 2023. That’s a $900 increase over the $12,950 standard deduction for the upcoming tax season.

For married couples filing together, the payment is up to $27,700 for tax year 2023. That’s an increase of $1,800 over the $25,900 standard deduction set for the year. upcoming taxes.

An increase in the marginal tax rate reflects a similar increase of 7%. For example, the 22% tax bracket for this year is over $41,775 for single filers and more than $83,550 for married couples filing jointly. Next year, The same 22% bracket applies to incomes over $44,725 and over $89,450 for married couples filing jointly.

MarketWatch / IRS

“The changes appear to be much larger than in previous years because inflation is moving much higher than in previous decades,” said Alex Durante, an economist at the Tax Foundation, a tax advisory organization. “.

The IRS adjusts for inflation by averaging a slightly different measure of inflation, the so-called “Chain Consumer Price Index“Instead of the widely tracked Consumer Price Index, Durante noted. It was a result of Trump’s Tax Cuts and Jobs Act of 2017, he added.

“The reason they do this is because conventional CPI is supposed to increase inflation because it doesn’t take into account the substitution shoppers can make when costs go up,” says Durante. Buyers substitute when they exchange a more expensive item for a cheaper one, and research shows many Americans are using this tactic.

Inflation-adjusted IRS comes after September CPI data last week showed inflation 8.2% year-on-year, down slightly from 8.3% in August. Also last week, the Social Security Administration said next year’s payments will include adjusted cost of living 8.7%.

The payout for the earned income tax credit – geared towards low- and middle-income working families who have been hit hard by hot inflation – is also on the rise.

The payment for the earned income tax credit is also increasing. The maximum payout for an eligible taxpayer with at least three qualifying children climbs to $7,430, up from $6,935 for this tax year. Long-term credit is geared towards low- and middle-income working families who have been hit hard by hot inflation.

More than 60 terms are expected to increase with inflation, but many parts of the tax code not indexed for inflation. Depending on the circumstances, taxes or tax breaks take effect sooner.

An example of a capital gains tax rule. The IRS allows taxpayers to use capital losses to offset capital gains taxes. If the losses exceed the gain, the IRS allows taxpayers to deduct up to $3,000 in excess losses. They can then carry forward the remaining lost capital for future tax years. According to Durante, it’s been more than four decades since lawmakers introduced the final limit.

While more than 60 terms are expected to increase with inflation, many parts of the tax code are not indexed for inflation. These include capital gains taxes.

Given the stock market’s tough slide this year, many investors can welcome the upcoming tax cut — even if it only allows for a $3,000 deduction.

At the same time, a couple selling their home can exclude the first $500,000 of the sale from capital gains tax, and it is $250,000 for a single applicant. It has been that way since the 1997 establishment of the exclusion.

The housing market that was once a white fever may be cooling down, but many sellers may still face problems once the taxes kick in. The median home listing is more than $367,000 like early October, according to Redfin
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The Child Tax Credit is another example. After the parent payment last year increased to $3,600 for children under 6 and $3,000 for each child ages 6 to 17, that figure has reverted to the $2,000 maximum. The IRS notes that the refundable portion of the credit increases from $1,500 to $1,600 in the 2023 tax year.

Boosted payments advocates and some congressional Democrats want to recover larger payments in corporate tax negotiations. They say the high cost of living is a strong reason to bring in enhanced credit.

Related:

What smart strategies can reduce your tax bill as the year-end approaches? Read this before making any tax moves.

Three things that 401(k)s best deals can save you so much more

The enhanced child tax credit helped reduce poverty for families before it ended last year. But there is a way that Republicans and Democrats could agree on reinstating it.

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