In October, 2022, the Internal Revenue Service (IRS) announced inflation adjustments for tax year 2023. Since inflation is currently very high, you may fall into a lower tax bracket for income you earn in 2023. This is a tax-planning opportunity for federal workers and retirees alike.
Understanding How Tax Brackets Work
Since U.S. income tax rates are graduated, you pay different rates on graduated amounts of income subject to federal taxes. For example, if you file as single and you’re in the 22% tax bracket in 2023, it doesn’t mean you’ll pay 22% on all your taxable income. You’ll pay 10% on your taxable earnings up to $11,000, then 12% on taxable earnings from $11,000 to $44,725, then 22% on taxable earnings above that up to $95,375.
“Keep in mind that, if you’re married and filing separately, you’ll pay the same tax rate as an unmarried person.”
2023 Tax Brackets
Based on the following, the IRS has increased the income threshold for each tax bracket to provide some tax relief on income earned in 2023. Keep in mind that, if you’re married and filing separately, you’ll pay the same tax rate as an unmarried person.
- 37% for incomes over $578,125 ($693,750 for married couples filing jointly)
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly)
- 32% for incomes over $182,100 ($364,200 for married couples filing jointly)
- 24% for incomes over $95,375 ($190,750 for married couples filing jointly)
- 22% for incomes over $44,725 ($89,450 for married couples filing jointly)
- 12% for incomes over $11,000 ($22,000 for married couples filing jointly)
- 10% for incomes of $11,000 or less ($22,000 for married couples filing jointly)
Higher Standard Deduction For Income Earned In 2023
The higher standard deduction for income earned in 2023 will provide additional tax relief for working and retired federal employees. For single filers, the standard deduction has increased to $13,850 for the 2023 tax year, up from $12,950 in 2022. The standard deduction for couples filing jointly increased to $27,700 for tax year 2023, up from $25,900 the previous year.
Single filers age 65 and older who are not a surviving spouse can increase the 2023 standard deduction by an additional $1,850. For joint filers age 65 and over, the standard deduction can be increased by $1,500 each for a total of $3,000 (if both filers are age 65 and over). There are other significant changes for tax year 2023. For complete details, go to: www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023.
Consider working with an FRC® trained advisor who can connect you with a knowledgeable tax professional to help lower your tax bill on your 2023 income.
