Lower 2023 Taxes For Many MD Residents As IRS Adjusts For Inflation
This article was written for the Maryland Patch by Deb Belt
MARYLAND — Inflation that has reduced Maryland residents’ purchasing power will also allow many of them to reduce their 2023 federal tax bills, the IRS said Tuesday.
The IRS said it is adjusting rules in about 60 provisions, from individual tax brackets to the standard deduction, to ease the pain of the rising inflation rate, which stood at 8.2 percent in September.
The IRS adjusts its rates annually to account for Consumer Price Index changes, but this year’s hot inflation would have pushed many Americans into higher tax brackets, even though their standard of living hadn’t changed.
The shift in tax rates would have been higher if not for a provision in the Trump administration’s 2017 tax overhaul that tied the tax rate to increases in the chain-weighted Consumer Price Index, based on the products consumers actually buy, rather than the standard Consumer Price Index, The New York Times reported.
The chained CPI increases at a slower rate, and was up by a quarter of a percentage point less than the standard CPI in September, according to the Times.
Per capita income in Maryland was $69,817 for tax year 2021, according to the latest analysis by the federal government’s Bureau of Economic Analysis.
Those figures don’t reflect the real-life experiences of many Maryland residents, whose salaries failed to keep pace with rising inflation. Overall, the Labor Department said in a news release last week, inflation-adjusted weekly earnings were down nearly 4 percent from September 2021.
The changes, some of the most notable listed below, are effective for tax returns filed in 2024.
Standard deduction increases are:
- Up 7 percent to $27,000, up from $25,900 in the current tax year, for married couples.
- Up by 6.9 percent to $13,850, up from $12,950 currently, for single filers or married people filing individually.
- Up 7.2 percent to $20,800, up from $19,400 this year, for heads of households.
Tax brackets for all tax filers will be boosted by about 7 percent. The highest tax rate based on income remains at 37 percent for individual single filers with incomes above $578,125, or for married couples whose income is higher than $693,750. Other brackets are:
- 35 percent for incomes over $231,250 ($462,500 for married couples filing jointly);
- 32 percent for incomes over $182,100 ($364,200 for married couples filing jointly);
- 24 percent for incomes over $95,375 ($190,750 for married couples filing jointly);
- 22 percent for incomes over $44,725 ($89,450 for married couples filing jointly);
- 12 percent for incomes over $11,000 ($22,000 for married couples filing jointly).
People with flexible spending accounts, funds taken from pre-tax dollars, to pay for medical expenses should use the 2023 tax brackets as they figure out what to set aside during health insurance open enrollment periods. Under the changes:
- The new rate for FSA contributions for 2023 is $3,050, an increase of about 7 percent, up from the current threshold of $2,850.
Other changes include:
- The maximum Earned Income Tax Credit increases to $7,430 for those who have at least three children, up from $6,935 in the current tax year.
- People can also give up to $17,000 in gifts in 2023 without paying taxes on the money, up from $16,000 in the current year.
- The IRS will exempt up to $12.92 million from the estate tax for people who die in 2023, up from $12.06 million for people who died in 2022, an increase of 7.1 percent.