IRS changes announced this week include an extension of certain energy-related tax breaks, an increase in standard deductions and more.
“The Inflation Reduction Act extended certain energy related tax breaks and indexed for inflation the energy efficient commercial buildings deduction beginning with tax year 2023,” said the IRS.
For tax year 2023 the amount used to determine deductions will increase and a formula for the deductions has been provided by the IRS.
Married couples filing jointly for tax year 2023 can now get a standard deduction of $27,700, up $1,800 from the prior year. Single taxpayers and married individuals filing separately can get standard deductions of $13,850, up $900. For heads of households, the standard deduction will be $20,800, up $1,400.
Tax year 2023 rates are as follows:
· 35% for incomes over $231,250 ($462,500 for married couples filing jointly)
· 32% for incomes over $182,100 ($364,200 for married couples filing jointly)
· 24% for incomes over $95,375 ($190,750 for married couples filing jointly)
· 22% for incomes over $44,725 ($89,450 for married couples filing jointly)
· 12% for incomes over $11,000 ($22,000 for married couples filing jointly)
· 10% for incomes of single individuals with incomes of $11,000 or less ($22,000 for married couples filing jointly).
The top tax rate will remain at 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
“The Alternative Minimum Tax exemption amount for tax year 2023 is $81,300 and begins to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption begins to phase out at $1,156,300),” said the IRS. “The 2022 exemption amount was $75,900 and began to phase out at $539,900 ($118,100 for married couples filing jointly for whom the exemption began to phase out at $1,079,800).”
Additional changes include the maximum Earned Income Tax Credit amount increasing to $7,430 for qualifying taxpayers who have three or more qualifying children, up from $6,935, and the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increasing to $300, up $20.
“It is very likely that you would see more in your paycheck starting in January [due to the IRS inflation adjustments, which] tend to result in lower withholding for a given level of income,” said Mark Luscombe, principal federal tax analyst for Wolters Kluwer Tax & Accounting, according to CNN Business.
“Life brings constant changes to individual financial situations,” the IRS said Thursday in a message urging taxpayers to check their withholding preferences.