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The Internal Revenue Service this week announced higher inflation adjustments for the 2023 tax year as it takes into account the steady rise in the cost of basic commodities such as food, rent and gasoline.

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Higher limits for federal income tax and standard deductions are designed to avoid a phenomenon known as bracket spread, which occurs when taxpayers are pushed into brackets with higher incomes, even if their purchasing power has remained largely unchanged due to higher prices for most goods.

IRS makes such adjustments annually, but in times of painfully high inflation, these increases are more significant and effective for taxpayers. The government said last week that the consumer price index, which measures a basket of everyday goods, rose 8.2% in September, much faster than expected. Core prices, excluding gasoline and food, jumped 6.6%, the highest since 1982.

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This year, the tax scale is shifting higher by about 7%.

INFLATION RISE MORE THAN EXPECTED IN SEPTEMBER AS PRICES REMAIN PAINFULLY HIGH

Higher thresholds at which tax rates kick in could mean savings for millions of Americans of any income.

Here are the changes submitted by the IRS on Tuesday. The inflation-adjusted elements will apply to the 2023 tax year, i.e. returns filed in 2024.

standard deduction

The standard deduction, which reduces the amount of income you have to pay taxes on, is claimed by most taxpayers.

It will rise to $27,700 from $25,900 in 2023 for married couples applying jointly, up about 7%. For individuals, the new maximum will be $13,850 for 2022, up from $12,950, according to the IRS.

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Household heads will see their standard deduction rise to $20,800 in 2023 from $19,400, or about 7.2%.

Individual income tax

Tax categories for single persons:

The IRS increases tax brackets by approximately 7% for both single and married applicants across income spectrums. In 2023, the maximum tax rate will remain at 37%.

  • 10%: taxable income up to $11,000 or less
  • 12%: Taxable income over $11,000.
  • 22%: taxable income over $44,725.
  • 24%: taxable income over $95,375.
  • 32%: taxable income over $182,100.
  • 35%: taxable income over $231,250.
  • 37%: taxable income over $578,125.

Tax categories for part-time workers:

  • 10%: taxable income up to $22,000.
  • 12%: Taxable income over $22,000.
  • 22%: taxable income $89,450
  • 24%: $190,750 taxable income.
  • 32%: taxable income $364,200.
  • 35%: $462,500 taxable income.
  • 37%: taxable income over $693,750.

Other tax provisions

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The IRS has raised thresholds for several other provisions, including the amount of the earned income tax credit, and families are now eligible for $7,430 if they have three or more eligible children. That’s more than $6,935 in tax year 2022.

Employees can also contribute more to their flexible health spending accounts, with the maximum contribution increasing to $3,050.