Will My Tax Bracket Change in 2023?

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KEY POINTS

  • The IRS recently updated its tax brackets for the upcoming year.
  • You may end up falling into a different bracket, resulting in a different amount of tax on your highest dollars of income. 


It all depends on your income.

The U.S. tax system is a marginal one. Workers don't pay a flat federal income tax rate on their earnings. Rather, they pay a higher rate on their highest dollars of earnings. And the rate you end up paying on your highest dollars of income will hinge on the tax bracket you fall into.

Recently, the IRS updated its tax brackets for 2023. And that's actually a good thing, because now, workers have the leeway to earn a little more money before having higher tax rates apply to their highest dollars of earnings. 

But will your tax bracket change in the coming year? That really depends on what your income looks like. 

Introducing the 2023 tax brackets

Here's a snapshot of next year's tax brackets which, as you can see, hinge on income as well as filing status:

Tax Bracket Single tax-filers Married couples filing jointly Heads of households
10% $0 to $11,000 $0 to $22,000 $0 to $15,700
12% $11,001 to $44,725 $22,001 to $89,450 $15,701 to $59,850
22% $44,726 to $95,375 $89,451 to $190,750 $59,851 to $95,350
24% $95,376 to $182,100 $190,751 to $364,200 $95,351 to $182,100
32% $182,101 to $231,250 $364,201 to $462,500 $182,101 to $231,250
35% $231,251 to $578,125 $462,501 to $693,750 $231,251 to $578,100
37% $578,126 or more $693,751 or more $578,101 or more
Data source: IRS

So, let's say you're single earning $50,000 a year. You may notice that you fall into the 22% tax bracket. But that doesn't mean you'll be subject to that tax rate on all of your income. Rather, you'll only be subject to that tax rate on earnings of $44,726 and above.

How will your tax situation change in 2023?

Here's an overview of what tax brackets look like in 2022:

Tax bracket Single tax-filers Married couples filing jointly Heads of household
10% $0 to $10,275 $0 to $20,550 $0 to $14,650
12% $10,276 to $41,775 $20,551 to $83,550 $14,651 to $55,900
22% $41,776 to $89,075 $83,551 to $178,150 $55,901 to $89,050
24% $89,076 to $170,050 $178,151 to $340,100 $89,051 to $170,050
32% $170,051 to $215,950 $340,101 to $431,900 $170,051 to $215,950
35% $215,951 to $539,900 $431,901 to $647,850 $215,951 to $539,900
37% $539,901 or more $647,851 or more $539,901 or more
Data source: IRS

Now you'll notice that the seven distinct tax brackets are the same in 2022 as in 2023:

  • 10%
  • 12%
  • 22%
  • 24%
  • 32%
  • 35%
  • 37%

However, the income thresholds for those brackets have all changed. Specifically, they've gone up -- meaning, workers can earn more money in 2023 before falling into a higher tax bracket.

In 2022, for single tax-filers, a tax rate of 22% applies to income of $41,776 to $89,075. In 2023, that 22% tax rate won't apply for singles until their income reaches $44,726. So it's conceivable that you might fall into a new tax bracket in 2023 -- but that tax bracket won't necessarily be a higher one. It may be a lower one.

Let's say you're single and your total income this year is $43,000. That means you're subject to a 22% tax rate on your highest dollars of earnings. If your income stays the same in 2023, you should land in a lower tax bracket, because the threshold to be bumped into the 22% bracket is going to be $44,726, not $41,776.

Of course, it's important to keep in mind that a lot of different factors go into the equation when determining your tax bracket. Remember, you don't just pay taxes on ordinary wages from a job. You also pay taxes on capital gains in a brokerage account or interest income earned in a savings account. 

It's also important not to confuse your marginal tax rate/bracket with your effective tax rate. The former is what you pay on your highest dollars of earnings. The latter is the tax rate that applies to your income on a whole. 

If all of this seems very confusing, you're in good company. But that's why it could pay to sit down with a tax professional. Not only might a professional be able to walk you through your personal situation and let you know what to expect for 2023, but they might also manage to help you find ways to lower your taxes -- and keep more of your income for yourself.

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