IRS Increasing Standard Tax Deductions for 2023 as Inflation Soars

The IRS is helping Americans protect their income from rapidly rising food, gas, and energy prices, that have already taken a chunk out of their pockets.

The agency announced Tuesday it is raising the income threshold for all tax brackets and will also increase the standard deduction. 

This means millions of Americans could see a bump in their paychecks next year.

Those thresholds will increase by about seven percent overall. The standard deduction will rise to $27,700 for couples, an increase of $1,800 from this year. For individuals, it will be a $900 increase to $13,850.

Middle-class workers and lower-income earners will see the most benefits as many people have not had an increase in income with the rising cost of goods.

The maximum amount people can contribute to their health savings account will increase from $2,850 to $3,050. 

Families with three or more children will also see an increase in the earned income tax credit, rising from $6,935 to $7,430.

The inflation adjustments are incremental and announced every year, but due to record inflation the adjustments are unusually high. 

According to The Wall Street Journal, this is the largest adjustment to standard deductions since 1985.

The 35 percent tax rate will now start above $231,250 for individuals and $462,500 for married couples. The 32 percent tax rate will start above incomes of $182,100 for individuals and $364,200 for couples.

The 24 percent rate will apply above individual incomes of $95,375 and $190,750 for couples. The 22 percent rate starts above $44,725 for individuals and $89,450 for couples. The 12 percent rate will apply to individual incomes above $11,000 and $22,000 for married couples. The lowest rate, 10 percent, will apply to incomes up to those amounts.

The adjustments will be made for the year 2023 and will be applied to tax returns filed in 2024. 

Data released by the Bureau of Labor Statistics last week showed that compared to last year, rent is up 7.2%, electricity prices are up 15.5%, groceries are up 13%, and health insurance is about 30% more expensive.

As CBN News has reported, the Federal Reserve has already taken extraordinary measures to curb rising prices.

It has increased short-term interest rates by three points since March, hoping to counter the worst inflation since the early 1980s.

The Fed will meet on Nov. 1 and may increase interest rates again. 

Meanwhile, global inflation is expected to peak at 9.5% this year. Inflation rates in the United Kingdom have hit a 40-year high and Chinese and European economies are expected to stall.

"The worst is yet to come and for many people, 2023 will feel like a recession," said Pierre-Olivier Gourinchas, International Monetary Fund (IMF) chief economist, last week. 

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