Here’s some good news if your wages haven’t kept pace with inflation: you’ll save more money on your taxes in 2023. Every year the IRS re-evaluates its tax brackets and makes changes to reflect the country’s cost of living. On Tuesday, the IRS announced major changes to combat inflation, even more than usual.
The federal agency updated more than 60 tax provisions, some of which will ultimately raise standard deductions and income limits in tax brackets for both individuals and couples filing jointly—giving workers who qualify for the adjustments lower tax rates and more take-home pay beginning in January. Other updates to the tax code also redraw tax exemptions and limits on flexible spending accounts, Earned Income Tax Credit, estates and gift-giving.
Here’s what to know:
What this means for individuals
For single taxpayers and married individuals filing separately, the standard deduction—the dollar limit that taxpayers can subtract from their taxed income—boosts to $13,850 for 2023, up $900 from 2022. The maximum tax rate remains at 37%. Here’s how much individuals will pay in taxes according to their incomes:
If you make $11,000 or less: You’ll pay 10% of your gross income in taxes If you make between $11,0001 – $44,725: You’ll pay $1,100 + 12% of gross income over $11,000 If you make between $44,726 – $95,375: You’ll pay $5,147 + 22% of gross income over $44,726 If you make between $95,376 – $182,100: You’ll pay $16,290 + 24% of gross income over $95,375 If you make between $182,101 – $231,250: You’ll pay $37,104 + 32% of gross income over $182,100 If you make between $231,251 – $578,125: You’ll pay $52,832 + 35% of gross income over $231,250 If you make $578,126 or more: You’ll pay $174,238.25 + 37% of gross income over $578,125 What this means for married couples
For married couples filing their taxes jointly, the standard deduction in 2023 rises to $27,700, an $1,800 increase. Here’s how much couples will pay in taxes according to their incomes:
If you make $22,000 or less: You’ll pay 10% of your gross income in taxes If you make between $22,001 – $89,450: You’ll pay $2,200 + 12% of gross income over $22,000 If you make between $89,451 – $190,750: You’ll pay $10,294 + 22% of gross income over $89,451 If you make between $190,751 – $364,200: You’ll pay $32,580 + 24% of gross income over $190,750 If you make between $364,201 – $462,500: You’ll pay $74,208 + 32% of gross income over $364,201 If you make between $462,501 – $693,750: You’ll pay $105,664 + 35% of gross income over $462,500 If you make $693,751 or more: You’ll pay $186,601.50 + 37% of gross income over $693,751 Other changes in the tax code
Other changes to certain widely-used tax credits could be helpful for low to moderate-income filers. The Earned Income Tax Credit, which helps working-class filers get a tax break, will raise its claim limit to $7,430 for households with at least three children, a jump of nearly $500. Flexible spending accounts—which allow workers to set aside money for medical expenses and eventually withdraw those savings before incurring taxes—will have a higher contribution limit of $3,050 next year, compared to this year’s limit of $2,850.
Wealthy Americans will have some opportunities to qualify for asset tax exemptions in 2023. The IRS will exempt up to $12.92 million before taxing a deceased person’s estate, a jump of more than 7% from last year. Tax-exempt gifts will also increase from a value limit of $16,000 to $17,000 in 2023.
For low-income individuals who may usually opt out of filing tax returns because they aren’t required to, the IRS in a separate announcement last week said that doing so is the only way for people to claim benefits they were eligible for in 2021 but didn’t accept. More than nine million families may be eligible to claim missed stimulus payments, Child Tax Credit and other benefits, so the agency has extended the filing portal until Nov. 17.
FAQs
Yes – If Your Circ*mstances Fit. Share: The IRS does have the authority to write off all or some of your tax debt and settle with you for less than you owe. This is called an offer in compromise, or OIC.
How can I lower my federal tax bill? ›
8 ways to potentially lower your taxes
- Plan throughout the year for taxes.
- Contribute to your retirement accounts.
- Contribute to your HSA.
- If you're older than 70.5 years, consider a QCD.
- If you're itemizing, maximize deductions.
- Look for opportunities to leverage available tax credits.
- Consider tax-loss harvesting.
The Department of Community Services and Development encourages Californians earning under $30,000 a year to file their taxes to claim the California Earned Income Tax Credit (CalEITC), a cash-back tax credit, and receive a larger tax refund.
What change did the IRS make? ›
The IRS made more Americans eligible to file their taxes for free through its public-private partnership this year. Taxpayers with an adjusted gross income (AGI) of $79,000 or less in 2023 can access guided tax prep through IRS Free File. That's a whopping $6,000 higher than last year's income cap of $73,000.
Who qualifies for tax debt forgiveness? ›
The IRS has the final say on whether you qualify for debt forgiveness. In general, though, the agency looks for taxpayers who: A total tax debt balance of $50,000 or below. A total income below $100,000 (or $200,000 for married couples)
What is the Tax Relief Act 2024? ›
Tax Relief for American Families and Workers Act of 2024
This title allows taxpayers to delay the date on which they must begin deducting their domestic research or experimental research costs over a five-year period until 2026.
Can you reduce your tax bill? ›
Take advantage of tax credits
There are many tax credits available, and it is essential to claim all the benefits you are entitled to. Credits are usually better than deductions because they can reduce the tax you owe, not just your taxable income.
How to pay no income tax? ›
Be Super-Rich. Finally, it's quite easy to pay no income taxes if you're extremely rich. In our tax system, money is only subject to income tax when it is earned or when an asset is sold at a profit. You don't have to pay income taxes on the appreciation of assets like real estate or stocks until you sell them.
How to get a $10,000 tax refund? ›
How do I get a 10,000 tax refund? You could end up with a $10,000 tax refund if you've paid significantly more tax payments than you owe at the end of the year.
Is it better to claim 1 or 0 on your taxes? ›
Claiming 1 on your tax return reduces withholdings with each paycheck, which means you make more money on a week-to-week basis. When you claim 0 allowances, the IRS withholds more money each paycheck but you get a larger tax return.
Requirements to receive up to $7,000 for the Earned Income Tax Credit refund (EITC)
- Have worked and earned income under $63,398.
- Have investment income below $11,000 in the tax year 2023.
- Have a valid Social Security number by the due date of your 2023 return (including extensions)
You should not claim too many allowances, or you might end up having to pay the IRS. Claiming 0 allowances means that too much money will be withheld by the IRS. The allowances you can claim vary from situation to situation. If you are married with a kid, you can claim up to three allowances.
At what age is Social Security no longer taxed? ›
Yes, Social Security is taxed federally after the age of 70. If you get a Social Security check, it will always be part of your taxable income, regardless of your age. There is some variation at the state level, though, so make sure to check the laws for the state where you live.
What are the new IRS rules for 2024? ›
For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.
Why is everyone owing taxes this year in 2024? ›
Under-withholding from Your Paycheck
Under-withholding is the #1 reason individuals owe taxes. This occurs when not enough tax is taken out of your paychecks throughout the year. If you haven't updated your W-4 form after a major life change, income adjustment, or second job, you might find yourself in this situation.
Can I negotiate my tax debt with the IRS? ›
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability or doing so creates a financial hardship.
Does IRS debt ever drop off? ›
Each tax assessment has a Collection Statute Expiration Date (CSED). Internal Revenue Code (IRC) 6502 provides that the length of the period for collection after assessment of a tax liability is 10 years. The collection statute expiration ends the government's right to pursue collection of a liability.
How do I get out of tax debt with the IRS? ›
You have options to resolve your tax bill.
- Can you pay your balance now? ...
- Apply online for a payment plan.
- See if you're eligible for an offer in compromise.
- If you can't afford to pay because of your financial condition, you can ask us to temporarily delay collection.
Also, your proposed payment amount must full pay the assessed tax liability within 72 months or satisfy the tax liability in full by the Collection Statute Expiration Date (CSED), whichever is less. Refer to Time IRS Can Collect Tax for more information about the CSED.
