As the cost of living across the United States surges, millions of Americans could face higher taxes on top of soaring inflation.
A recent CBS article noted that annual inflation -- which rose by 9.1% in June 2022 -- has rendered "the current value of the U.S. minimum wage in real dollars is at its lowest level since February 1956, when the base U.S. wage was 75 cents (or $7.19 in June 2022 dollars)."
Now, as previously noted, inflation could also lead to rising tax bills next year. Annually, the Internal Revenue Service (IRS) reviews its tax code and makes any necessary adjustments.
For 2022, American taxpayers enjoyed a boost in federal income tax brackets, changes to 401(k) plan contribution limits, and more. But the provisions that have not been adjusted for inflation could cause problems for some filers down the road.
Per CNBC, retirees and homeowners of all income levels could find themselves hit hardest. In a recent article, the outlet shared:
...some seniors may feel the sting at tax time because the limits for levies on Social Security benefits have stayed the same for decades.
Currently, up to 85% may be taxable if adjusted gross income, levy-free interest and one-half of Social Security benefits exceed $34,000 for single filers and $44,000 for married couples filing jointly.
On the heels of last year's record-breaking 5.9% cost of living increase, Social Security recipients are set to get an estimated 10.5% increase for 2023.
This would result in an additional $175.10 per month per household, according to CNBC's estimation -- and could have an impact when tax filing season rolls around again.
As for homeowners, taxes for selling a property could increase. CNBC's report noted:
Joint filers may exclude up to $500,000 of profit from capital gains taxes and single sellers can shield up to $250,000, provided they meet the ownership and use tests. But these amounts haven’t changed since 1997, despite median home sales prices more than doubling over the past 20 years.
Leonard Burman, Urban Institute fellow and co-founder of the Tax Policy Center, stated that he believes these fixed limits are intentional:
“I think the intent was for that exemption level to decline in value over time. Basically, it’s a way of phasing in a tax increase or at least limiting the revenue costs.”
The IRS has not yet made its 2023 tax code changes, so it is important to keep in mind that retirees and homeowners may or may not actually see rising taxes over the next year or two.
What do you think about how inflation could potentially raise taxes?
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