In recent times, inflation has seen a decline. Nonetheless, it still wields enough power to influence Social Security perks, certain tax-related guidelines, and other aspects that might impact your financial planning. With 2024 on the horizon, let’s delve into some key matters to be aware of, peppered with some tax-related tidbits.
A Slowdown in Social Security Boosts
In 2023, the Social Security Administration made headlines by unveiling a COLA (Cost-Of-Living Adjustment) of a whopping 8.7%. But, brace yourself, because 2024’s rise may be a fraction of this.
Why such a dramatic change? The colossal 8.7% adjustment in 2023, the largest we’ve seen in over four decades, directly responded to the inflation wave. However, the measures the Federal Reserve took in the last two years have tamed this inflation beast. This means the anticipated COLA for 2024 might hover around the modest mark of 3%.
However, hold onto your calculators for a bit. The Social Security Administration is poised to make its official announcement only around mid-October, as they’re gathering the freshest inflation data for September.
For those wondering, Social Security COLAs get their direction from the fluctuations in CPI-W (Consumer Price Index for Wage Earners and Clerical Workers). This is measured from one year’s third quarter to the next’s. If the current trends are any indication, we can expect the COLA augmentation to be nestled somewhere between 3 and 3.5%.
To give you some figures, the average monthly retirement benefit from Social Security hovers around $1,792. So, any rise within 3 to 3.5% could mean a boost of about $54 to $63 per month.
Insights into Tax Bracket and Standard Deduction Adjustments
Inflation leads to alterations in over 60 federal tax provisions annually. These tweaks are designed to combat the notorious “bracket creep”. This phenomenon tends to push unsuspecting taxpayers into shelling out more due to inflation, even if their actual income hasn’t seen a rise. This insight comes courtesy of a recent snapshot provided by the Tax Foundation.
2023, like its predecessor 2022, witnesses seven income brackets for individuals at the federal level. The catch is that the monetary limits in these brackets are set to see a minor increase. For those crunching numbers, the tax percentages for 2023 stand at 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Digging a bit deeper, the standard deduction for singles in 2023 is pegged at $13,850 and for couples filing together, it’s $27,700. These figures see a bump of $900 and $1,800 from the 2022 numbers, respectively.
When it comes to long-term capital gains, the tax rates remain consistent at 0%, 15%, and 20%. However, the associated monetary brackets have been nudged a bit. As an illustration, single taxpayers with a taxable income bracket of around $44,625 to $492,300 (or $89,250 to $553,850 for couples filing jointly) fall under the 15% category.
Lastly, the Earned Income Tax Credit has also undergone a few tweaks. For taxpayers at the lower end without children, it’s $560. For those with a single child, it’s $3,995, $6,604 for two children, and for those blessed with three or more kids, it’s $7,430.