2023 Tax Shake-Up: The Changes You Need to Know to Stay Ahead of the Game

Most products on this page are from partners who may compensate us. This may influence which products we write about and where and how they appear on the page. However, opinions expressed here are the author's alone, not those of any bank, credit card issuer, airline or hotel chain. This page may include information about American Express products currently unavailable on Slickdeals. American Express is not a partner of Slickdeals.

As of October 22, 2022, the IRS made updates to over 60 different tax codes that affect you as an individual filer. Here are the biggest changes that will impact your 2023 tax season.

Tax Rate Tables

The tax rate you pay is a direct correlation of your earnings over the previous year. Simply put, wherever you fall on the spectrum for your Adjusted Gross Income (AGI), that will be the tax rate applied for your earnings. 

For the 2023 tax brackets, the tax rates are still in a range from 10% to 37% however, the earning ranges shifted slightly. So if you were on the edge of your tax bracket in 2022 you may have slipped into a higher tax bracket without any type of pay increase. Also, if you receive a pay increase throughout this year, that can bump you up as well.  

See the chart below for the updated ranges. 

Capital Gains

Attention investors, crypto connoisseurs, and real estate moguls, long-term capital gains are being taxed differently in 2023 (in a good way). There’s a long-held understanding among investors that capital gains taxes are the norm for selling an asset for a profit. The government taxes those earnings separately from your salaried or earned income. 

There is a bonus however if you hold an asset for at least a year prior to selling you will be taxed less – it’s a “long-term capital gain tax”. If you sell prior to a year it’s now a “short-term capital gain tax” which is a much more aggressive applied rate. For 2023, the IRS is lending more lenience to those brackets which in turn is allowing investors to earn more in capital gains before being taxed. Below are the new brackets along with a comparison to 2022. 

Standard Deduction Increase

Also included as a direct result of inflation is an increase in standard deduction. The standard deduction is a portion of your AGI that isn’t subject to income tax. It’s common for the deduction to be increased incrementally year over year, but this is a considerable hike at 7%. For individuals, the deduction is now $13,850 and married couples filing jointly its $27,700. 

With this increase taxpayers could see a decrease in their tax bill, if they owe or they could now be subject to a refund. 

Child Tax Credit

Pexels

Tax payers who have children and are eligible for the Child Tax Credit will be seeing some changes for 2023 now. Parents might remember a larger than normal refund in previous years due to the COVID-19 increases. However, we are now returning to pre-pandemic credits and parents should expect numbers closer to that of 2019 than 2020. Here’s what changed:

• The Child Tax Credit is now for children 16 or younger (previously 17 or younger)
• The credit has been reduced to $2,000 for all children (previously $3,000 for kids 6+ and $3,600 for 0-6)
• The advance on the credit has been canceled (so no more $300 early monthly payout)

Earned Income Credit

Low to moderate income households also has an additional tax break at their disposal as a way to lower their taxable income – the Earned Income Credit. In 2023 the IRS is loosening those restrictions allow for a higher tax credit (up almost 7% for the highest tier). 

Here’s the new ranges and credits for 2023:

Taxes 2023 and Beyond

If inflation continues to spiral out of control, we may be seeing larger-than-normal credit increases in the coming years. However, regardless of the market most of these tax codes are subject to indexing anyways (indexing is the annual review that determines their increases). Because of indexing, the likelihood of these codes changing again is high, but how much is yet to be determined.