The IRS's new guidelines may result in tax savings next year
The IRS revealed various revisions for the 2023 tax year on Tuesday to account for the impact of inflation. The adjustments may result in tax benefits for many taxpayers: more of your 2023 salary may benefit from lower tax rates than this year, and you may be able to claim a larger standard deduction. Here are the changes revealed by the IRS, as well as what they imply for your wallet in the next year.
Standard deductibility
The standard deduction is the monetary amount that most taxpayers are allowed to deduct from their taxable income. As long as you don't itemize your deductions, you can claim the IRS standard deduction to minimize your overall tax payment.
In 2023, the IRS inflation adjustments include a larger standard deduction. It will be $13,850 (an increase of $900) for single filers and $27,700 (an increase of $1,800) for married couples filing jointly.
Income tax rates
In addition, the IRS raised the income requirements for each tax bracket. Your tax bracket indicates the percentage of your income that will be taxed. (CBS says that many people assume the highest rate is what they'll pay on all of their income, which is incorrect.)
To account for inflation, the 2023 IRS changes result in a 7% rise in each tax bracket:
- The 10% tax applies to the first $11,000 of income earned by a single taxpayer ($22,000 for married couples filing jointly).
- The tax is 12% on income over $11,000 ($22,000 for joint filers).
- Over $44,725 ($89,450 for joint filers), the tax rate is 22%.
- Over $95,375 ($190,750 for joint filers), the tax rate is 24%.
- Incomes over $182,100 ($364,200 for joint filers) are subject to a 32% tax.
- Incomes over $578,125 ($693,750 for joint filers) are subject to a 37% tax.
FSA contribution caps
Many people who set aside money for medical expenditures might benefit from tax breaks by using flexible spending accounts. The FSA contribution level for the 2022 tax year is $2,850, while the new IRS maximum goes up to $3,050 in 2023.
Because workers often establish their FSA limits in the autumn, this modification may be important for you right now. In the new year, you can utilize the higher threshold to calculate your FSA contribution.
If you can carry over unused portions of your FSA payment, the maximum allowed is $610 ($40 more than this year's limit).
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) enables low-income employees to keep more of their earnings. The maximum amount available to EITC claimants will increase by around 7% next year. Qualifying taxpayers with at least three children can claim up to $7,430 (up from $6,935 in the current tax year). Here's how to see if you're eligible for the EITC.
Finally, all of the adjustments mentioned above will not take effect until the 2023 tax year. They will have no bearing on your 2022 tax return, which you must file by mid-April 2023.
#Tax #TaxRate #IRS #IncomeTax #Texas
SOURCE: lifehacker
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