Federal Tax Withholding Updates

The IRS announced the higher limits for the federal tax bracket in tax year 2023.The increase is intended to avoid a phenomenon known as “bracket creep”, which happens when taxpayers are pushed into higher-income brackets even though their purchasing power is essentially unchanged due to steeper prices for most goods.

 

The IRS makes such adjustments annually, but in times of painfully high inflation, the increases are more significant and impactful for taxpayers. Inflation hovered around a four-decade high for much of 2022, hitting a high of 9.1% in June and falling slightly to 7.1% in November – still about three times the pre-pandemic average. This year, the tax brackets are shifting higher by about 7%.

 

Due to this change, employees will see a difference to their take-home pay in 2023. We are asking all our clients to speak with their employees to see if they would like to make changes to their federal withholding tax.  If anyone would like to make a change, a new 2023 W-4 will need to be completed and kept for your records and the change emailed, faxed, or called into our office. Please remember, do not include the Social Security Number on any W-4 that is sent to us unless you are using a secure method.