DAYTON, Ohio (WDTN) — At a time when everyone is feeling the pinch, any extra money can be helpful. The IRS is making changes to the 2023 tax code to relieve some of the pain of inflation.
Charrisa Rand is a Jackson Hewitt Franchise Owner in Dayton. She said the IRS is doing this to combat ‘bracket creep.’
“There’s actually a term for it and they call it a bracket creep. So that’s when the cost of living increases as well as your wages increase, but the tax bracket remains the same,” Rand explained.
Because of this, the IRS is raising the standard deduction by nearly seven percent, and adjusting tax brackets. This is the largest automatic change to standard deductions since 1985. Dr. Kevin Willardsen, an Associate Professor of Economics at Wright State University, said this will look more like a tax cut.
“It’s actually going to operate an awful lot like a tax cut in the sense that we’re not changing the rates, but we are changing the amount of money with which those rates get applied,” Dr. Willardsen said.
John Tarwater, an Associate Professor of Finance at Cedarville University, said these adjustments will impact most taxpayers.
“For those who are in lower income tax brackets, you’ve got things like the earned income tax credit that’s going to benefit them more. For those in the upper tax brackets, you’ve got an increase in the estate tax, the amount you can transfer to a loved one,” Tarwater said.
For single filers, the standard deduction will go up $900 to $13,850. For married couples filing jointly, the standard deduction will go up $1,800 to $27,700.
Rand said because of such a big bump, more people may choose the standard deduction when they file their 2023 returns.
“It’s going to be a significantly high and you’re probably going to see more people taking the standard deduction when they file their 2023 taxes, versus itemizing because the standard deduction is so much higher,” Rand said.
The IRS is also increasing the threshold to enter a new tax bracket by about seven percent, which means some people could be taxed at a lower rate. For example, the 24 percent tax rate for single filer starts at $89,075 this year, but for the 2023 tax year, that income starts at $95,375.
Rand said these changes will also mean more money in your paychecks starting in January.
“They will see in just the next couple of months they’ll be bringing home a little bit more money in every paycheck due to the IRS changing the tax rate and increasing that. It’s about an average of 7%,” Rand said.
While this is good news, Dr. Willardsen also warned this will vary from person to person.
“Don’t get wrapped up in that 7% number. The reduction of what you’re actually going to end up paying in taxes is going to be quite a bit less than that. It’s just a 7% reduction in the amount you’re able to be taxed on,” Dr. Willardsen explained.
The IRS also raised the maximum amount someone can claim the Earned Income Tax Credit (EITC) by seven percent, and people will be able to contribute more to their Flexible Spending Accounts in the 2023 tax year.
These adjustments will be made to the 2023 tax year, which mean these tax returns will be filed in 2024. To learn more about these adjustments, click here.