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How Inflation Can Impact Your Taxes

January 23, 2023 - 2 MINUTE READ

Here we are in 2023 still talking inflation and how it drives up the price of everything from gas to groceries. You notice it when you go to the store for “just a few things” and see a higher than usual amount on your receipt. The good news is IRS inflation adjustments and the new 2023 federal tax brackets are updated accordingly. That information might help your tax planning and help you save money when you file your 2022 return.

For the 2022 tax year (Tax Day is April 18th, 2023), single filers with $41,776 to $89,075 of taxable income land in the 22% income tax bracket.1 Moving forward in 2023, that bracket will apply to those with taxable income of $44,725 to $95,375. 1Since higher than normal inflation amounts have persisted, the inflation adjusted tax brackets for 2023 are more favorable for some people than the 2022 amounts. The standard deduction is also adjusted for inflation on an annual basis, which may help reduce your tax bill if you don’t itemize deductions. 1For the 2023 tax year, the standard deduction is $13,850 if you’re single and $27,700 for a married couple filing jointly.

The 2023 social security COLA adjustment was 8.7%, higher than the previous record high in 2022 of 5.9%.1 That represents a substantial raise for social security recipients, which was adjusted to offset the inflation we have been experiencing. The social security benefit statement (Form SSA-1099) that you get from the government shows the amount of benefits you received in the previous year. This might help you determine whether your benefit is subject to tax.

Sources:
1 https://www.fidelity.com/insights/personal-finance/inflation-tax-bill

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