The Internal Revenue Service announced Wednesday higher federal income tax brackets and standard deductions for next year, which will be a welcomed cost of living adjustment for many Americans.
Why it matters: The new brackets for 2023 mean paychecks for many Americans could see a boost, which will help consumers who are being hit hard by inflation and aren't seeing raises that keep pace with price increases.
2022 tax brackets for individuals
Individual rates: Each of the tax brackets' income ranges jumped about 7% from last year's numbers. Here's a breakdown of last year's income and rates:
- $10,275 or less: 10% marginal rate
- $10,276 to $41,775: 12%
- $41,776 to $89,075: 22%
- $89,076 to $170,050: 24%
- $170,051 to $215,950: 32%
- $215,951 to $539,900: 35%
- $539,901 or more: 37%
2022 tax brackets for married couples
Married couples filing jointly brackets jumped about 7% as well. Here's a breakdown of last year's income and rates:
- $20,550 or less: 10% marginal rate
- $20,551 to $83,550: 12%
- $83,551 to $178,150: 22%
- $178,151 to $340,100: 24%
- $340,101 to $431,900: 32%
- $431,901 to $647,850: 35%
- $647,851 or more: 37%
2023 tax brackets and income
State of play: Inflation is hitting Americans hard right now. In September, consumer prices soared and were up 8.2% compared to a year before.
- By adjusting the tax brackets — as the IRS does every year — it is attempting to stop "bracket creep," which happens when inflation pushes taxpayers into a higher income tax bracket without an increase in real income.
Worth noting: The jump could have been higher if not for a tax overhaul signed by former President Trump in 2017, the New York Times reports.
- Republicans at the time tied the adjustments to the chained Consumer Price Index, which tends to rise at a slower pace than the standard CPI.
- In September, chained CPI grew 0.2 percentage points slower than the standard CPI compared to 2021.
Thought bubble via Axios' Emily Peck: These adjustments happen every year but are significant now due to inflation.
- Congress passed these adjustments the last time inflation was high decades ago. It is hard to imagine lawmakers joining together to enact this kind of policy now.
What they're saying: "Inflation adjustments to tax brackets mean that it will be harder for taxpayers to hit those higher brackets, and therefore will have more income taxed at lower rates next year," said Tim Steffen, director of tax planning with wealth management company Baird, in a statement.
Go deeper: IRS releases inflation-adjustments for next year's taxes
Editor's note: This story was first published on Oct. 19, 2022.
