Retirement, Saving, Social Security, Taxes
November 10, 2022
Inflation has been a big drain on household budgets for more than a year now. It’s still not clear if the Federal Reserve’s decision to sharply raise its core interest rate is going to have the desired impact of slowing down the rate of inflation.
But I do have some good inflation-related news.
The 2023 cost-of-living-adjustment (COLA) for Social Security benefits is 8.7%. That’s the highest level in more than a decade. And 2023 will be a rare year when there’s no offsetting rise in Medicare Part B premiums. The standard monthly premium next year will be $164.90, a slight decline from this year’s $170.10 standard charge.
For those of you who are considering delaying when you start Social Security past age 62, I want you to know that every year you wait between 62 and 70, not only will your eventual benefit grow, but your account will also be credited for any inflation hikes as well. Don’t worry: You’re not losing out on COLAs when you delay starting to take your Social Security benefit.
Inflation this year may also help everyone—not just retirees—owe less in federal taxes. A lot of our federal tax rules are indexed to inflation. That means the dollar limits are changed annually to keep up with inflation.
Here are the most common ways inflation this year may lower your federal tax bill in 2023:
Single filers will have a standard deduction of $13,850. That’s $900 more than this year.
Married couples filing a joint tax return will have a standard deduction of $27,700. That’s an increase of $1,800.
Tax rates aren’t changing, but the income limits for a given tax bracket are rising.
For example, this year the 22% federal tax bracket applies to a single person with taxable income between $41,776 and $89,075 and married couples filing a joint tax return with taxable income between $83,551 and $178,150.
In 2023 the 22% tax bracket will apply to single filers with taxable income between $44,726 and $95,375 and married couples filing a joint tax return with taxable income between $89,451 and $190,750.
Let’s consider a single filer with $95,000 in taxable income this year. That’s above the threshold for the 22% tax bracket; so the top tax bracket for this filer for the 2022 tax year would rise to 24%. But for the 2023 tax year, the same $95,000 in taxable income would have a top tax rate of 22%.
Every tax bracket—they range from 10% to 37%—will see their income limits rise for 2023.