IRS adjusts tax brackets for inflation — but pain will persist, experts say
The Internal Revenue Service has announced major inflation adjustments for tax brackets — but experts say they still won’t offset all of the pain.
The IRS put out a statement on Tuesday announcing that its tax brackets next year will increase by around 7% as taxpayers grapple with surging prices for everything from gasoline to groceries. That means those whose wages have not kept up with inflation could be eligible to land in lower tax brackets.
The IRS adjusts tax brackets annually using an adjusted version of the US government’s Consumer Price Index. Typically the increase is small, but this time — using the big price jumps logged between September 2021 and August 2022 as inflation hits 40-year highs — the upward revision is far more dramatic.
Still, the 7% figure falls short of the recent monthly surges in the CPI, which was up 8.2% in September. And the lag time for the adjustment — it will become effective only for 2023 which means people won’t reap the benefit of for another 18 months — means tax pain will persist.
“There’s always strong pressure to protect taxpayers from excessive, unfair tax liability,” Alex Durante, an economist at The Tax Foundation, told The Post. “But that doesn’t mean the IRS is comprehensive in adjusting rates.”
Likewise, the income threshold for capital gains tax — which, at just $41,675, clearly affects more than the ultra-wealthy — hasn’t been updated since 1978, Durante noted.
“Policymakers are reluctant to address cap gains since that is seen as targeting higher earners,” Durante added. “Right now, many cap gains are just gains because of how high inflation is.”
The IRS said that the standard deduction for married couples filing jointly for tax year 2023 will rise by $1,800 to $27,700. Single taxpayers and married filers who are submitting their tax documents individually will see their standard deduction go up by $900 to $13,850. For heads of household, the standard deduction will rise by $1,400 to $20,800.
Marginal tax rates will remain the same — 37% — for those who earn incomes greater than $578,125. For married couple, the 37% marginal rate applies to those earning $693,750.
Those individuals earning incomes of more than $231,250 will be charged a 35% marginal tax rate. Married couples who earn $462,500 and who file their returns jointly will also be on the hook for the 35% marginal rate.
Individual tax filers earning more than $182,100 — and married couples with incomes of greater than $364,200 — must pay a marginal tax rate of 32%, according to the IRS.
Filers earning more than $95,375 — and married joint filers whose incomes exceed $190,750 — are on the hook for a 24% marginal tax rate. Individual filers earning more than $44,725 must pay a marginal tax rate of 22% — as do married filers who earn $89,450.
The IRS will slap a 12% marginal tax on individual filers earning more than $11,000 — and on joint married filers earning over $22,000.
The agency says that the Earned Income Tax Credit, which is for taxpayers with three or more qualifying children, will also rise — from $6,935 for tax year 2022 to $7,430.
Overall prices rose 8.2% in September compared with a year earlier, down slightly from August, the government said in its monthly inflation report.
Consumer prices, excluding volatile food and energy costs, jumped 6.6% in September from a year ago — the fastest such pace in four decades.
And on a month-to-month basis, such “core” prices soared 0.6% for a second straight time, defying expectations for a slowdown and signaling that the Fed’s multiple rate hikes have yet to ease inflation pressures.
With Post wires