Tax Brackets 2023: How They Work and What They Mean for Your Finances

The IRS has released the official tax brackets for 2023, and the numbers paint a complex picture for taxpayers. With inflation still running hot, the agency has boosted bracket thresholds by roughly 7% across the board. But what does it all mean for your bottom line come April?

“I was surprised to see how much the brackets jumped this year,” said Sarah Thompson, a 38-year-old marketing manager in Denver. “A 7% adjustment is no joke.”

In simple terms, tax brackets determine the rate you pay on each portion of your “taxable income”—that’s what’s left after you subtract deductions and credits. For 2023, rates remain unchanged at 10%, 12%, 22%, 24%, 32%, 35% and 37%. But the dollar ranges for each bracket have shifted significantly.

Bracket Adjustments Outpace Typical Raises

Consider the 24% bracket. For 2022, it kicked in at $89,075 for single filers. In 2023, that threshold jumps to $95,375—a $6,300 increase. The upward adjustments are even steeper at the top end, with the 37% bracket now starting at $578,125 for singles, up from $539,900.

“Most people aren’t going to see their incomes rise 7% in a year,” noted Mark Benson, a CPA in Chicago. “So even if you get a decent raise, more of your income could get pushed into a higher bracket.”

Married Filers See Bigger Shifts

For married couples filing jointly, the bracket adjustments are even more pronounced. The 22% rate now extends to $190,750, up from $178,150 in 2022. And the top 37% rate doesn’t kick in until taxable income exceeds $693,750, a hefty bump from $647,850.

“The expanded brackets are a silver lining for dual-income households,” said Lisa Chen, a financial planner in Los Angeles. “It means more of your money gets taxed at lower rates.”

Standard Deduction Also Rises

It’s not just the brackets that are changing. The standard deduction—claimed by nearly 90% of taxpayers—is also getting a boost to account for inflation.

For 2023, the standard deduction rises to $13,850 for single filers, up $900 from 2022. Married couples will see an $1,800 increase, with the deduction hitting $27,700. Heads of household can claim $20,800, a $1,400 jump.

“The higher standard deduction is good news for most taxpayers,” Benson said. “It means more of your income is shielded from taxes right off the bat.”

Navigating the New Landscape

So what’s the bottom line? The IRS adjustments may soften the blow of inflation, but they won’t eliminate it entirely. Savvy taxpayers will need to crunch the numbers to understand where they stand.

“My advice is to run a projection with the new brackets and your expected 2023 income,” Chen suggested. “That will give you a clearer picture of your tax situation so you can plan accordingly.”

With the tax landscape shifting yet again, one thing remains constant: the importance of proactive planning. By understanding the changes and taking steps to optimize your finances, you can keep more of your hard-earned dollars in your pocket.

As the new brackets take effect, taxpayers across the country will be watching closely to see how the revised rates and thresholds impact their financial future—and their hopes for a brighter tomorrow.