IRS Changes Could Mean Tax Savings for 2023
The IRS recently announced that it has adjusted many of its 2023 tax rules to help taxpayers avoid “bracket creep.” That’s when workers get pushed into higher tax brackets due to the impact of cost-of-living adjustments to offset inflation, despite their standard of living not having changed. On average, the IRS pushed up each provision by about 7% for 2023. This could mean some much-needed tax savings for some taxpayers this year, providing some relief at a time when Americans are still struggling with high inflation that’s eating away at their purchasing power. Let’s take a closer look at what this means for your taxes in 2023.
What the Tax Brackets Adjustment Means for You
The most visible impact of the changes is likely to be seen in the individual income tax brackets. For example, if you’re single and filing your taxes with taxable income of between $91,900 and $163,300 in 2023, you were previously taxed at a rate of 24%. But because of the changes made by the IRS, you can now expect to be taxed at just 22%. That might not sound like much, but over time those seemingly small amounts can add up significantly.
The adjustments also affect other deductions and credits as well. For instance, the child tax credit has been increased from $2,000 to $2,500 per qualifying child under age 17 in 2023. The earned income tax credit (EITC) has also been adjusted upward slightly—from $621 per qualifying child in 2022 to $647 per qualifying child in 2023—for families earning less than certain maximum incomes depending on how many children they have and other factors such as marital status and age.
Meanwhile, taxpayers who are eligible for itemized deductions will benefit from an increase in the ceiling on deductible state and local taxes (SALT). In 2020 and 2021 that limit was set at just $10K; however, beginning in 2022 it rose to $15K before settling back down to $10K again in 2025 unless further Congressional action is taken before then. So if you live somewhere with high property or sales taxes—or both—you may want to consider taking advantage of this change by claiming more SALT deductions on your federal return while they remain available.
With these changes from the IRS coming into effect this year, now is a great time to review your financial situation and start planning ahead for next year's taxes if you haven't already done so. While there are always uncertainties when it comes to preparing your taxes—especially in light of recent changes made by Congress and now by the IRS—the good news is that with careful planning you could potentially save some money on your taxes this year without having any negative long-term impacts on your finances. It pays to do your research! Good luck!