Tax season may be months away, but it’s never too early to determine what impact the Internal Revenue Service’s annual inflation-indexed tax adjustments will have on your bottom line.
The IRS announced its 2021 adjustments on 60 different tax provisions, including tax rate schedules and other taxes just hours after the Consumer Price Index was released, revealing that inflation hit a 31-year higher in October.
Taken together, the inflation adjustments for tax years 2021 and 2022 lay out what taxpayers can expect to be able to deduct and pay in 2023 and give them a chance to plan for their taxes now.
The standard deduction rises to $25,100 for married couples filing jointly in their 2022 returns. That’s a $300 increase. It rises to $25,900 for 2023 returns, an $800 rise, the IRS said.
For single filers and married individuals filing separately, the standard deduction in 2021 returns climbs to $12,550, a $150 increase. The following year, the deduction increases to $12,950, a $400 increase.
These are the standardized deductions taxpayers can take next year. They are also the deduction a taxpayer must beat for it to make sense for a taxpayer to take itemized deductions instead.
For 2021, there is no limitation on itemized deductions. The limitation was eliminated by the Tax Cuts and Jobs Act, the IRS said in a release.
The IRS also set new marginal rates. For tax year 2021, the top tax rate remains 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly). The other rates are:
• 35%, for incomes over $209,425 ($418,850 for married couples filing jointly);
• 32% for incomes over $164,925 ($329,850 for married couples filing jointly);
• 24% for incomes over $86,375 ($172,750 for married couples filing jointly);
• 22% for incomes over $40,525 ($81,050 for married couples filing jointly);
• 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).