The sneaky ways of inflation affecting your finances in 2023

Inflation has a way of affecting nearly every aspect of our finances. Big jumps in tax brackets can save money, especially if you’re working and your raises — like the ones most workers get — haven’t kept up with inflation. Plus, the $2,000 increase in your 401(k) limits means you can set aside more money for retirement. On the other hand, the massive increase in the maximum earnings taxable by Social Security means that higher earners will pay more in FICA taxes. If you own a home, you will need to check your coverage because there is a good chance that you are insured.

By now, you are probably aware of the more obvious ways that inflation affects your finances. Your money doesn’t go far at the grocery store, for example. The cost of credit cards and other variable rate debt increases as the Federal Reserve raises short-term interest rates to combat inflation. Rates are also rising, albeit more slowly, on savings accounts.

But other ways in which inflation helps or hurts has received less attention. Here are some of the major changes to watch for in 2023.

This undated file photo provided by NerdWallet shows Liz Weston, columnist for the personal finance website

Big tax changes benefit most taxpayers

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

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

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