The largest adjustment since the tax code was indexed in 1985.
WSJ (“Inflation Causes IRS to Raise Tax Brackets, Standard Deduction by 7%“):
The Internal Revenue Service adjusted key tax code parameters for 2023 to reflect higher inflation, raising the standard deduction and the income thresholds where tax rates take effect.
The 37% top marginal tax rate will apply to individual income above $578,125 and married couples’ income above $693,750 next year, as those thresholds go up 7% from 2022 under inflation adjustments announced by the agency on Tuesday.
The standard deduction will climb to $27,700 for married couples and $13,850 for individuals, both also up about 7% from this year, letting taxpayers shield more of their earnings from income taxes. The maximum contribution to a healthcare flexible spending account will climb to $3,050 from $2,850.
Because inflation is higher than at any time in the past four decades, tax code adjustments are unusually high as well. They occur annually under formulas set by Congress and largely match analysts’ projections.
This is the largest automatic adjustment to the standard deduction since core features of the tax system were first indexed to inflation in 1985.
