Consumer Alert: Good news if your wages haven’t kept up with inflation. Tax brackets are changing! Here’s how it affects you.
ROCHESTER, N.Y. — In this Consumer Alert, we’re going to talk about a guy named Phillips and why he matters to you.
A.W. Phillips was an economist whose theory has a direct effect on your wallet because his theory has helped guide monetary policies for decades.
It’s called the Phillips curve, and it describes the relationship between inflation and unemployment. It says as unemployment falls, inflation and wages rise because employers pay higher wages in a competitive job market and pass along those costs to consumers.
But I often get pretty upset with ole’ Phillips because reality has often defied the Phillips curve, and what we’re seeing right now is no exception. Unemployment is low and inflation is high, really high. We’re paying more for everything from food to furniture.
But wages are not keeping up, not even close. In fact, I went to the Bureau of Labor Statistics and looked up real wages. That’s our wages after factoring in inflation.
From September 2021 to September of this year, our real weekly wages actually decreased by 3.4 percent when you factor in the amount we now have to pay for rent, goods and services.
So Wednesday, the IRS made a big announcement. It’s moving up tax brackets because of inflation and increasing the standard deduction, which is the choice for 85 percent of taxpayers.
For married folks filing jointly, your standard deduction will rise to $27,700. That’s $18,000 more than the prior year. For single folks or married folks filing separately, the standard deduction rises to $13,850. That’s $900 more than the prior year.
And for heads of households, the standard deduction will be $20,800. That’s up $1,400 from the year
Marginal Rates: For tax year 2023, the top tax rate remains 37% for individual single taxpayers with incomes greater than $578,125 ($693,750 for married couples filing jointly).
The other rates are:
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly);
- 32% for incomes over $182,100 ($364,200 for married couples filing jointly);
- 24% for incomes over $95,375 ($190,750 for married couples filing jointly);
- 22% for incomes over $44,725 ($89,450 for married couples filing jointly);
- 12% for incomes over $11,000 ($22,000 for married couples filing jointly).
The earned income tax credit, which helps lower-income workers, will go up by about 7% from $6,935 to $7,430.
So if like most folks, your wages have increased but have not kept up with inflation, this is good news. You’ll likely fall into a lower tax bracket in 2023. The IRS is making these adjustments to avoid what they call “bracket creep” because of inflation.
That’s when workers who get a cost of living increase are pushed into a higher bracket, even though their standard of living hasn’t changed. These changes should prevent that. Remember these changes are for your 2023 taxes that you’ll file in early 2024.