American taxpayers may earn a surprise increase in their tax refund this year thanks to the Internal Revenue Service's (IRS') tax bracket changes.
The adjustments are in effect as of Jan. 1, and are part of the agency’s annual inflation changes meant to roll back “bracket creep,” which is when inflation pushes taxpayers who received a cost-of-living raise into a higher tax bracket, even though their standard of living has not increased.
Inflation has been moving towards the Fed’s target rate, though previously elevated rates of inflation have impacted the costs of everyday goods and value of the dollar. Taxpayers may have experienced a decrease in their regular tax refund last year—which was an average of $3,167—after pandemic-era benefits were cut. But experts say many Americans can expect to see an increase during this tax filing season.
Families may also see an increased tax refund if legislators act fast and vote on a child tax credit deal, which would provide families with greater access to the child tax credit through 2025.
Tax filing season officially started on Jan. 29 and lasts through April 15 in most states. Here’s what to know about the tax bracket changes.
What can Americans expect from the 2023 changes?
The IRS has implemented a number of changes that could put more money back in American taxpayers' pockets. That starts with the inflation adjustment of about 7% for all tax brackets, which H&R Block’s Chief Tax Officer Kathy Pickering calls “significant.”
"Taxpayers will be seeing a lower tax liability on the income that they earn," Pickering says.
Pickering advises taxpayers to be cautious about their budgeting, especially those who may have picked up a side business to account for inflation. “One of the trends that we're seeing overall in the economy [is that] so many people that are now either starting a small business, they're self-employed, or they're doing a side hustle,” Pickering notes. “As people are getting into that for the first time, if they haven't really been tracking things well, they may not have been paying their taxes [well] throughout the year. That's one of the scenarios where we see people have underestimated their tax liability.”
Taxpayers should be aware that they will have to file a 1099-K form next year, if they make more than $5,000 through an online marketplace or payment app.
What changes did the IRS implement for next year?
For next year’s tax filing season, the IRS has adjusted tax brackets by about 5.4%, slightly less than the 2023 adjustment. They have also increased the standard deduction rate, which is the “specific dollar amount that reduces the amount of income on which you're taxed,” according to the IRS.
Married couples who file jointly will see their standard deduction rise to $29,200 for the 2024 tax season, which will go up from the current standard deduction of $27,700.
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