As inflation weighs on U.S. consumers, many government and financial rules are changing to help combat price increases that reduce spending power.
In many cases, the changes are designed to help people lower their taxes and save more.
The 12-month inflation rate in September reached 8.2%. That was down slightly from 8.3% in August, but still near a four-year high.
Starting in 2023, everything from Social Security benefits to state and local minimum wages will be adjusted—in most cases at a pace not seen in a generation.
Some analysts and business leaders say inflation has peaked and even if prices rise, it won’t be as bad as this summer.
Abbott Laboratories CEO Robert Ford said on Oct. 19, “Although we’ve started to see some moderating effects in some areas of our business compared to earlier this year, inflation remains a global trend,” CNBC reported. stubborn power.”
However, higher inflation is already factored into many tax and wage data, which will change in 2023.
social security benefits
Social Security beneficiaries will experience the largest annual cost of living adjustment (COLA) in a generation, with benefits rising 8.7% starting in January. In addition to an unusual reduction in annual Medicare premiums, fixed-income beneficiaries can also enjoy a 100% increase in COLA this year.
income tax bracket
Due to inflation, the IRS tax bracket corresponding to your marginal tax rate is also moving up by 7%. In last week’s announcement, the IRS also said it would increase the standard deduction. Married couples filing jointly for the 2023 tax year will increase to $27,700, an increase of $1,800 from the previous year.
For single taxpayers and married individuals filing separately, the standard deduction increases to $13,850, an increase of $900; for heads of household, the standard deduction is $20,800, an increase of $1,400.
401(k) pre-tax contribution limit
The IRS is setting new, higher limits on how much employees and employers can contribute to retirement plans. Individual employees can contribute up to $22,500 to their 401(k) retirement accounts through 2023, up from $20,500 in 2022.
Together with employer contributions, the employee’s total annual limit will rise to $66,000 by 2023, up from $61,000 this year.
Earnings on savings, CD accounts and I-bonds
Yes, interest rates have risen across the board, making things like mortgages, auto loans, and credit cards more expensive. But many banks, especially those that only offer online services, are also paying more money by raising interest rates on high-yield savings and certificate-of-deposit accounts. But beware: Bankrate.com warns that some banks may not automatically increase the interest rate on your existing savings account, but instead require customers to switch from their existing account to one with a higher yield.
Meanwhile, the yield on inflation-protected bonds currently offers 9.62% interest. However, they will reset at the end of October – possibly below current yields as inflation starts to decelerate.
Parts of the U.S. adjust the minimum wage
Minimum wages in some jurisdictions are linked to inflation and will experience annual cost-of-living adjustments in the coming year. California is the state with the largest cost-of-living adjustment next year, raising the minimum wage to $15.50 for all institutions. Growth in California is capped by a statute that declares minimum wage increases cannot exceed 3.5% per year.
Minimum wages in some large cities will be tied to the cost of living, including Seattle, up $1.42 to $18.69; Denver, up $1.42 to $17.29; and San Diego, up $1.30 to $16.30.
Workers’ expectations of wages
Workers have also been adjusting their expectations of how wages should change with inflation.
A survey of workers in the most recent quarter showed the minimum wage they would be willing to accept a new job at $72,873, according to the Federal Reserve Bank of New York. That’s up from $68,954 in July 2021, but slightly down from $73,283 in March.