Finance

The Sneaky Ways Inflation Affects Your Money in 2023

Inflation has a way of affecting almost every aspect of our finances. Big jumps in tax brackets could save you money, especially if you’re working and your raises — like most workers’ — don’t keep pace with inflation. Plus, a $2,000 increase in 401(k) limits means you can set aside more money for retirement. On the other hand, a huge increase in the maximum earnings taxed by Social Security means that higher earners will pay more in FICA taxes. If you’re a homeowner, you’ll want to review your coverage because there’s a good chance you’re underinsured.

By now, you’re probably familiar with the more obvious ways inflation affects your finances. Your money doesn’t go as far at the grocery store, for example. Credit cards and other variable-rate debt are getting more expensive as the Federal Reserve raises short-term interest rates to fight inflation. Rates are also rising, but more slowly, on savings accounts.

But other ways inflation helps or hurts have received less attention. Here are some of the major changes to look out for in 2023.

MAJOR TAX CHANGES BENEFIT MOST TAXPAYERS

The IRS increased the standard deduction, which more than 90% of taxpayers take, by $1,800 for married couples filing jointly and by $900 for single filers. The standard deduction amounts in 2023 will be $27,700 for married couples and $13,850 for single filers.

In addition, the IRS adjusted federal tax brackets upward by about 7%. The higher deduction, higher brackets and other changes mean that most taxpayers will pay less in 2023, especially if their incomes do not keep pace with inflation.

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