(JustPatriots.com)- Major changes were announced to individual tax deductibles and tax brackets for the 2023 tax year, due to rising inflation.
This week, the Internal Revenue Service said that for the 2023 tax year, new individual tax deductibles will rise to $13,850 (a $900 increase) and $27,700 for married couples filing jointly (an $1,800 increase). Those increases represent an approximate 7% increase over levels for the 2022 tax year.
The Washington Post reported that these increases are the largest such year-to-year increase since back in 1985. That was the first year where tax brackets were tied to inflation.
All overall tax brackets increase by about 7% for next tax year as well. The IRS said that the highest tax bracket that pays a rate of 37% now has a minimum income of $578,125. It is $539,900 for this year.
The lowest tax bracket, which pays a 10% rate, will be in effect to any individual who earns no more than $11,000. This year, the maximum income an individual can make for that tax bracket is $10,275.
The minimum and maximum income for each of the other tax brackets increased as well.
The reason for these big increases is the fact that inflation is sky high and has remained that way for much of the year. The Consumer Price Index, for instance, has been at least 8% on an annual basis since March of this year, data from the Bureau of Labor Statistics show.
Inflation on a year-over-year basis actually declined in August and then again in September. However, it declined at a much slower rate than most analysts expected.
In fact, core inflation — which removes food and energy prices from the calculation because of the volatility — increased each of the last few months.
The IRS didn’t make any changes to the child tax credits because those levels were set in 2021 by the American Rescue Plan. The agency did make adjustments to the Earned Income Tax Credit, though.
Those tax credits that go to lower-income families increased almost $200 for those families who have at least three children. Expenses related to an adoption can be written off up to $14,890 in the 2023 tax year, which is a $450 increase over 2022 levels.
In addition to these changes, the IRS also increased the maximum amount that taxpayers can give in terms of estates and gifts without having to pay taxes on it.
People can gift $17,000 in value to another person in the 2023 tax year without having to pay taxes on it, which is a $1,000 increase from 2022. The maximum amount of estate money that can be shielded will be $12.9, an increase of more than $800,000 from 2022.
All of these changes from the IRS may mean that the average taxpayer will pay less in federal taxes for the 2023 tax year than they do for the 2022 tax year, assuming the same amount of income.