AARP Eye Center
Are expensive gas and groceries busting your budget? The Internal Revenue Service feels your pain. In one of the few silver linings of the highest inflation rates in four decades, the IRS announced inflation-adjusted changes to 2023 tax rules that could mean smaller tax bills for returns filed in 2024.
The Consumer Price Index (CPI) is more than just a measure of the change in prices of cereal, chicken and cars. Each year, the IRS takes the rate of inflation into account when determining the tax rates Americans pay. In the latest annual adjustments, Uncle Sam not only is giving taxpayers a break by boosting the standard deduction and raising income levels for each tax bracket, he’s including perks that could result in larger take-home pay and lower tax bills.
AARP Membership — $12 for your first year when you sign up for Automatic Renewal
Get instant access to members-only products and hundreds of discounts, a free second membership, and a subscription to AARP The Magazine.
“This is a silver lining of the high inflationary environment,” said Lisa Featherngill, national director of wealth planning for Comerica Bank.
A lot of financial things are tied to fluctuations in inflation, including annual Social Security benefit increases, the interest paid on U.S. I bonds, and tax changes that impact Form 1040. For example, the U.S. government already announced that Social Security recipients will receive an 8.7 percent cost-of-living adjustment in 2023 to offset higher inflation. On Nov. 1, the U.S. Treasury will set the new interest rate on I bonds for the next six months. (I bonds currently yield 9.62 percent; DepositAccounts.com expects that the new rate, from Nov. 1 to April 30, 2023, will be 6.48 percent.)
Most add up to savings
Changes in the tax code to account for inflation affect the most people. Here are 12 IRS changes for tax year 2023, for returns filed in 2024, that could save retirees and pre-retirees money and offset the financial hit of higher consumer prices:
1. Tax brackets
While the 2023 tax brackets remain the same — at 10 percent, 12, 22, 24, 32, 35 and 37 percent — the income level for each tax bracket has increased 7.1 percent. “That means more income will hit at [lower tax brackets] before you hit the higher brackets,” said Robert Seltzer, CPA, president of Seltzer Business Management. For example, an additional $12,600 of a married couple’s income in tax year 2023 would not fall into the higher 32 percent tax bracket as it would this tax year.