How to find out if the 2023 tax changes impact you
According to the U.S. Bureau of Labor Statistics, the annual inflation rate in January 2022 soared to 9.1 percent. Though it had cooled a bit to 8.2 percent by September, plenty of Americans still feel inflation’s sting. In tough times like these, it’s a little ironic the IRS would come riding in to help, but their adjustments to the tax code for 2023 may be the only glimmer of good financial news coming out of 2022. So, while the IRS gets to wear the white hat in this part of the inflation fight, it won’t help everyone. Even the winners may only get marginal assistance.
Here’s how to know if the new rules benefit you and how much.
Income tax rates
The IRS raised income limits in tax brackets across the board for 2023. That means anyone on the edge of a higher tax bracket last year might find themselves in a lower one this year, which could translate into a little more money in your pocket.
The biggest winners will be those who just made it into the 22 percent tax bracket this year, likely dropping into the 12 percent bracket in 2023. This year, individual filers earning under $44,725 will be in the 12% tax bracket in 2023. In 2022, that amount would get you plugged into the 22 percent bracket. The scale for married couples filing jointly went up from $83,550 to $89,450. Finally, heads of households in the 22 percent tax bracket in 2022 with a salary of $59,850 will drop into the 12 percent bracket if they are under that amount for 2023.
Others may not see such a drastic decrease if any at all. To find out, check out the tax bracket comparison chart here.
Every year the IRS determines the portion of income not subject to tax that can be used to reduce your tax bill. For 2023, it was bumped up $1,800 to $27,700 for married couples filing jointly. Single taxpayers start at $13,850, a $900 increase. Heads of households bump to $20,800, up $1,400 from 2022.
This only applies to filers that don’t itemize their taxes using Schedule A of Form 1040.
Alternative Minimum Tax
Changes to the Alternative Minimum Tax for 2023 may also impact many taxpayers. The AMT places a minimum on the percentage of taxes a filer has to pay regardless of how many deductions or credits they claim. In 2022, the exemption amount started at $75,900 and started to phase out at $539,900. Next year that increases to $81,300 and $578,150.
It’s not all good news
There is one cloud in all this good news. The wage base minimum for Social Security Tax will increase from $147,000 in 2022 to $160,200 in 2023, a bump of $13,200. That will hit the middle class the hardest.
Several other changes for 2023 will impact higher-income earners and taxpayers with particular circumstances, however, they probably won’t affect large portions of taxpayers. You can find them all here.
With such broad changes, it would be wise to study them closely and determine how they will impact your bottom line next year. Then, as always, consult a trusted tax professional with questions.
Here’s to a great 2023 tax year for you!