Updated Tax Brackets for 2023: Lucky 7

Andrew Busa, MSPFP, CFP^®, MPAS^®, CCFC

Manager of Financial Planning

The IRS released updated tax brackets, contribution limits and standard deduction numbers for tax year 2023. While these updates occur annually, this year’s adjustments pack a greater punch courtesy of higher inflation.

It’s important to keep in mind that the tax rates themselves remain unchanged; it’s the income thresholds that are rising—by about 7% for each tax filing tier. For instance, in tax year 2023 the top marginal tax rate (37%) will apply to individuals earning more than $578,125 and married couples with income above $693,750. In 2022 those hurdles were $539,900 and $647,850, respectively.

Likewise, the standard deduction is being bumped up by about 7%, to $27,700 for joint filers and $13,850 for individuals in 2023. This is up from $25,900 and $12,950. That 7% increase will also flow through to other parts of the tax code, including flexible spending account contribution limits, the earned income tax credit and capital gains tax brackets. Keep in mind that these adjustments will apply to tax returns filed in 2024.

So, what should you do differently for updated tax brackets in 2023? We believe a best practice is to review your tax withholding annually by using the IRS Tax Withholding Estimator. The IRS reported that nearly 70% of taxpayers withhold too much from their paycheck. That means less take-home pay and an interest-free loan to the government until your tax refund comes in the following year. And for clients who max out their 401(k), get ready to grow your savings—you can contribute $22,500 to this potent tax-deferred retirement savings vehicle in 2023, 10% more than in 2022.

If you have questions about this or other tax and financial planning issues, please call us today: We’re ready to help.