The new tax brackets and standard deductions are already in effect. This could increase paychecks and reduce income taxes for many United States citizens, who enter the new year still reeling from higher prices. In the big picture, the Internal Revenue Service made some changes with inflation in mind, including increasing contribution limits for tax-deferred retirement plans in 2023:
- Higher limits on 401(k) plans can help individuals save more for retirement, which in many cases will help reduce their income taxes.
- The new tax adjustments apply to tax returns filed in 2024, but the IRS also changed the 2023 tax withholding tables , which determine how much money employers must withhold from employees’ wages in federal tax paychecks.
Cost-of-living adjustments, such as taxes, Social Security payments or wages that might have previously gone unnoticed, are important.
Income tax brackets 2023
By adjusting tax brackets, as the IRS does every year, it is trying to stop bracket creep, which occurs when inflation pushes taxpayers into a higher tax bracket without an increase in real income.
Marginal tax brackets for 2023 tax year
Marginal Rate | Individual Income | Married couples filing jointly |
---|---|---|
24% | $95,376 to $182,100 | $190,751 to $364,200 |
37% | $578,126 or more | $693,751 or more |
22% | $44,726 to $95,375 | $89,451 to $190,750 |
35% | $231,251 to $578,125 | $462,501 to $693,750 |
32% | $182,101 to $231,250 | $364,201 to $462,500 |
12% | $11,000 to $44,725 | $22,001 to $89,450 |
10% | $11,000 or less | $22,000 or less |
Data: IRS; Table: Axios Visuals
2023 retirement limit increase
Americans can contribute up to $22,500 to 401(k), 403(b) and most 457 plans: $2,000 more than the $20,500 contribution limit for 2022.
Meanwhile, the limit on annual contributions to an IRA increased to $6,500 from $6,000. The IRA catch-up contribution limit for people age 50 or older is not subject to an annual cost-of-living adjustment and remains $1,000, the IRS said.
Between the lines: the income ranges for determining eligibility to make deductible contributions to traditional IRAs, to contribute to Roth IRAs and to claim the Saver’s Credit increased for 2023, the IRS said.
Tax deductions for tax year 2023
The standard deduction for tax year 2023 for married couples filing jointly will be $27,700, $1,800 more than the deduction for tax year 2022.
- For single taxpayers, the standard deduction is $13,850, up $900.
- That means your top tax rate may have gone down. For example, if you earned $90,000 a year in 2022, your top tax rate was 24%. In 2023, it is 22%.
FSA contribution limit increases in 2023
The IRS also announced in October that it would increase the limit for 2023 contributions to health flexible spending arrangements to $3,050, up from $2,850 for 2022.