Lower 2023 Taxes For Many IL Residents As IRS Adjusts For Inflation (2024)

Community Corner

Illinois' per capita income in 2021 was $67,244 which is 8.2 percent higher than in 2020 and higher than the national average, the IRS says.

Posted Wed, Oct 19, 2022 at 11:45 am CT

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 Illinois was $67,244, for the tax year 2021, according to the latest analysis by the federal government’s Bureau of Economic Analysis. The per capita income for last year was 8.2 percent higher than it was in 2020, according to the IRS, and was higher than the national average for income, which came in at $64,143.

In 2021, the state registered a personal income of 852,082.1, which ranked fifth in the United States, the IRS said.

Those figures don’t reflect the real-life experiences of many of Illinois 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.