(JustPatriots.com)- As it does every year, the Internal Revenue Service is likely to make adjustments in 2023 to many provisions, including individual tax brackets or how much taxpayers can save in their IRAs, as a way to account for inflation.
With inflation at a 40-year high, tax experts expect some major changes are in store for 2023, though the IRS isn’t likely to announce these changes until October or November.
One notable change could be in tax brackets.
If inflation isn’t taken into account, taxpayers who received a pay increase to keep up with inflation would invariably get bumped into a higher tax bracket despite their standard of living remaining the same. To avoid this kind of “bracket creep” from the rising cost of living, the IRS has to make adjustments in the tax bracket.
Tax brackets determine the rate an individual will pay on each portion of income.
If a single filer has a taxable income of $40,000, the tax rate would be 10 percent on the first $10,275 earned, then 12 percent on everything above that amount.
Some tax experts believe that this same filer could see a 7 percent increase per bracket, meaning the rate would be 10 percent on the first $11,000 instead of $10,275, then 12 percent on everything above that amount.
Taxpayers may also see a higher standard deduction in 2023 that could help lower their taxes.
Since the standard deduction is a flat amount taxpayers can use to reduce their taxable income, an increase in it would likely lower the amount of income earned that is subject to tax in 2023.
It is also likely the IRS will adjust the contribution limits for IRA or 401(k) accounts which would allow taxpayers to invest more in their retirement for the year.