2023 Tax Bracket Changes
After the record inflation rates observed this past year, the IRS announced adjustments to tax bracket thresholds in Revenue Procedure 2022-38, which was released on October 18. These changes will raise the top amounts of all seven federal income tax brackets for 2023, increasing approximately 7% from last year’s limits.
Although tax code adjustments are typically made annually, this year’s updates are recognized as “unusually high” because inflation rates are currently higher than they’ve been at any time in the past four decades. However, if everything else remains the same, these changes may mean that workers could see higher take-home pay beginning in January 2023.
Here is a comparison of income tax rates and ranges for 2023 and 2022:
Following its announcement of these changes, the IRS urges taxpayers to revisit their withholding amounts to check if they are withholding the correct amount of income. As we previously mentioned, proper withholding adjustments will help boost take-home pay.
If you are withholding too much federal income, this could reduce take-home pay. However, in some cases (like employees with multiple income sources), withholding more could help you avoid a tax bill when you file your tax return.
In addition to the tax bracket changes, the IRS also adjusted 401k contribution limits as well as standard deductions. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increased from $20,500 in 2022 to $22,500 in 2023. Additionally, the catch-up contribution increased to $7500 in 2023, up from $6500 in 2022.
For more information on these tax bracket change or other related matters, please contact Francesca San Diego.