The Internal Revenue Service announced new tax adjustments for 2023 as millions of Americans experienced higher inflation last year. This may allow many to take home a bigger paycheck.
The standard deductions, like 401(k) contributions and social security tax that reduce the amount of income individuals are taxed on, “will climb to $27,700 for married couples and $13,850 for individuals, both also up about 7% from this year, letting taxpayers shield more of their earnings from income taxes,” The Wall Street Journal reported.
This is the IRS’s largest increase to standard deductions since they were indexed in 1985, per WSJ. It is because inflation has been at its highest in the last four decades.
The percentage of tax paid will remain the same but “the earning threshold to enter a new tax bracket is about 7 percent higher,” per The Hill.
Other increases will also be rolled out, like transportation benefits up from $280 to $300, health flexible spending accounts increasing from $2,850 to $3,050, and the maximum earned income tax credit that went from $6,935 to $7,430, the report said. These changes apply to taxes filed in 2024.
As for the estate and lifetime gift tax, the exemption will rise to $12.92 million from $12.06 million per person. And the annual gift tax deduction was raised from $17,000 to $16,000, per the WSJ.