We are headed for about a 7% inflation adjustment to 2023 tax brackets – maybe more depending on how inflation pans out through September. Here are the inflation-adjusted guesstimates for your 2023 tax year.
As you probably know, the federal income tax rate brackets, and many other federal tax parameters, are indexed for inflation using a factor based on the monthly average of changes in the chained Consumer Price Index, or chained CPI. Due to the way they are calculated, upticks in the chained CPI numbers during inflationary times, like now, are a bit lower than upticks in the regular CPI numbers that you read about in the media. But the differences are relatively trivial.
That was then. This is now. You’ll not be surprised to hear that there will be a much-higher inflation adjustment factor for the 2023 tax year. According to my calculations, we are headed for about a 7% inflation adjustment. Maybe more depending on how inflation pans out through September. For the eight months taken into account so far, we are looking at a factor of about 7.1%. Let’s assume that the inflation adjustment factor for the 2023 tax year will be 7%.
An assumed 7% inflation adjustment factor would increase the 2023 standard deduction amounts as follows: Impact: Other things being equal, you could have 7% more in federal-income-tax-free long-term capital gains and dividends next year. Good.
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