Wednesday, October 19, 2022

2022's inflation might mean lots of relief in 2023

Inflation may be a pain for a lot of people, but in a backdoor way, a lot of Americans are going to get tax relief in 2023 due to the rise in prices in 2022.
Taxpayers will get fatter standard deductions for 2023 and all seven federal income tax bracket levels will be revised upward as the government allows people to shield more of their money from taxation because of persistently high inflation.

For couples who file jointly for tax year 2023, the standard deduction increases to $27,700 up $1,800 from tax year 2022, the IRS announced. Single taxpayers and married people filing separately will see their the standard deduction rise to $13,850, up $900, and for heads of households, the standard deduction will be $20,800, up $1,400.

The adjustments come as inflation accelerated in September, with the Consumer Price Index rising 0.4% last month after just 0.1% in August. Inflation is up 8.2% for the past 12 months.

Some items that were indexed for inflation in the past will remain unchanged, such as the personal exemption, which remains at zero. And the limitation on itemized deductions was eliminated under President Donald Trump.
That's an inflation adjustment on the tax brackets of about 7% at the federal level, and Axios gives a good breakdown of the changes in this article.

So if you don't get a 7% raise next year, at least you'll pay a lower % in income tax. And from what I can tell on state statute, Wisconsin's brackets may be up as much as 8% for 2023.

Older Americans are also going to see a boost in a different type of income due to this year's high inflation.

It's also worth mentioning that those same seniors aren't going to pay more than $35 for insulin next year, due to the Dem-supported Inflation Reduction Act. And they are also going to pay lower premiums for Medicare Part B next year, because some medical costs didn't go up as much as prices overall.
Medicare’s Part B standard monthly premium will fall to $164.90 in 2023, a $5.20 decrease from 2022, the Centers for Medicare & Medicaid Services (CMS) announced on Sept. 27. The open enrollment period to make any changes to next year’s Medicare coverage begins on Oct. 15 and goes through Dec. 7.

The premium drop comes in the wake of the big 2022 increase, the largest dollar increase in the history of the program. Part B covers doctor visits, diagnostic tests and other outpatient services. Most Medicare beneficiaries have Part B premiums deducted directly from their monthly Social Security payments.

Next year’s premium decrease makes good on statements this year by Health and Human Services Secretary Xavier Becerra that the money Medicare was saving because spending on Aduhelm, a new Alzheimer’s drug, was not going to be as high as expected would be passed on to beneficiaries in 2023. Spending on other Part B services is also projected to be less than anticipated.
We've already seen overall inflation moderate since June, and now a large number of Americans are going to be taking home more money in 2 1/2 months. This could go a long way toward giving the "soft landing" that the Fed and most Americans are hoping for as rates are raised and prices cool off.

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