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Tax landscape impacted by inflation ahead of 2023

Economy Consumer Prices
Posted at 4:39 AM, Oct 25, 2022
and last updated 2022-10-25 08:08:10-04

People are still receiving their Middle-Class Tax Refunds in the mail or by direct deposit. The Refund comes as millions of families are affected by inflation across the U.S.

You can find the Middle-Class Tax Refund calculator here, to see how much you and your family might receive.

KSBY caught up with a local wealth advisor to find out how inflation is changing the tax landscape for 2023.

“The income tax brackets will go up by about 7.1%,” said Dillon McGill, a Wacker Wealth Partners advisor.

He said that an increase is important because it might save you more money in your pocket.

“You might cross that threshold, going the other direction and stay in the 12% bracket. So someone, if their income doesn't change a whole lot from 2022 to 2023, might pay less in taxes in 2023," he clarified.

While the money from the refund helps, McGill says the amounts are not likely to make or break someone's financial situation.

You are eligible to receive the Middle-Class Tax Refund if:

  • You filed your 2020 tax return by October 15, 2021
  • You meet the income limits
  • California resident for at least 6 months in 2020
  • Located in California when the payment is issued.

As people check their accounts for the money, the State of California will not be taxing the aid.

“The Franchise Tax Board has said that they will not be taxable as income to the state. It's to be determined whether or not they'll be taxable at the federal level,” McGill added. However, the federal government did not tax the Golden State Stimulus Checks when they were deployed previously.

McGill did have some advice on how to save in the face of inflation: “If you're trying to save for retirement and manage some looming debt that you have, whether it's student debt or a mortgage, the best thing to do is to pause first to evaluate the kind of debt that it is.”

Recently, an Appeals Court put President Biden's Student Debt Relief Plan on pause, so many are uncertain of that future.

McGill recommended potentially deferring big purchases for when the economy is less volatile, but also said that not all debt is a bad thing.

“If the debt has a fixed interest rate and that interest rate is relatively low, then you're in a fairly good position to direct dollars towards your savings. Now, if it's credit card debt, which has a really high-interest rate and can potentially keep climbing, it's not a fixed rate, then you're going to want to pay that off as soon as possible. That's way more important to pay off that kind of debt than to direct money towards your savings," he told KSBY.

McGill recommended that people maintain an emergency fund with at least three months' worth of expenses in case of a layoff, job transition, or personal emergency.

“With times like this, that gets scary in terms of what the markets are doing and what it might feel like the economy is doing. It's important to fall back on a plan,” said McGill.