If you’ve strolled through a grocery store or filled up your gas tank in recent months, then you probably already know that the U.S. inflation rate hit a record-breaking peak in 2022.
At a staggering 9.1%, inflation was the highest it’s been in 40 years — hence the climbing prices of foods, goods, and services. Thankfully, the turn of the new year could bring some much-sought relief to your paycheck, as analysts predict dropping rates all throughout 2023.
Legislative bodies have also made moves to ease the burden of inflation on the average consumer, though many workers across the country are still seeing differences in where and how far their income goes. From social security to taxable income, inflation is changing a lot for the modern employee.
Read more from the hiring experts at Sabio Systems to learn how inflation and the subsequent countermeasures could be affecting your paycheck.
How is inflation impacting annual raises?
Survey results from the Willis Towers Watson company state that wages in the U.S. could see an increase to the tune of 4.6% in 2023.
This is inline with recent research into the job market landscape: the top concern for employees and job seekers this year is compensation. Cost of living is rising coast to coast, but according to the WTW survey, wages will, too.
Whether or not this 4.6% raise will be enough to out-pace the current inflation rate of 6.5% is a matter of simple math — for many, it won’t be enough. However, if inflation does decline to The Federal Reserves estimated value, 2.8% by the end of the year, then employees could potentially reap the rewards of rapidly increasing wage rates.
Learn More: What Makes a Good Compensation Package?
How will inflation impact tax returns?
Offering a bit of relief for income earners of all levels, the Internal Revenue Service (IRS) disclosed upcoming adjustments to the federal tax brackets in October of 2022.
While the government regularly makes tweaks to the brackets to insulate taxpayers from the gradual rise of inflation, the modifications for 2023 are significant due to the sharp spikes of the previous year.
How does this affect the modern employee? Changing the income threshold for each position prevents workers from creeping up into a higher tax bracket when their stand of living has remained the same. This, paired with the increase in standard deductions, does translate to more money in your paycheck, as most of your earnings are taxed at the lowest possible rate.
How are changes to the standard deduction rates helping to combat inflation?
Single and joint filers can now expect to claim hundreds more on their standard deductions, thanks to recent changes in the IRS revenue procedure.
Standard deductions are applied for taxpayers that don’t or aren’t able to itemize their deductions — individuals filing independently can claim an additional $900 in 2023, now at a total of $13,850. The standard deduction for married couples or those filing jointly jumped by $1,800 to $27,700.
This inflation-related adjustment lowers the amount of taxable income for each employee, which can translate to higher tax returns and decreased liability the deduction. So even if your 2023 raise doesn’t make as significant of a dent in your expenses as you’d hoped, the new IRS revenue procedures could still give your earnings a much-needed boost.
Ready to find a new job with the income of your dreams? Connect with an experienced recruiter from Sabio Systems to take the next step in your career.
How is inflation influencing Social Security taxes?
Adjustments to the Social Security tax minimum, like those to standard deductions and tax brackets, happen annually to account for the natural escalation of inflation.
For two-thirds of income earners in America, this modification will have no impact on their paychecks. The minimum taxable income required for the Social Security tax raised to $160,200 for 2023 — only 33% of taxpayers in the country make over $100,000 per year.
The higher income earners, of which only 18% exceed $150,000 and potentially qualify, will pay an additional tax of 6.2% on the income that surpasses the minimum cap.
Do higher retirement contribution limits affect paychecks?
Contributions to retirement plans, like the 401(k)s included in some compensation packages, are also seeing a jump in 2023.
As the biggest inflation adjustment to retirement plans since 2007, the $2,000 increase pushes the limit to a total of $22,500. The contribution limit affects employees that are 50 and older as well, increasing the minimum rate to $7,500.
Retirement contributions are taken directly from earned wages — if you notice a dip in your paycheck, this could be the cause. Fortunately, this money is reallocated to a savings account intended to fund your retirement years. Often, competitive employers will also offer to match contribution payments to retirement plans, meaning you could potentially save more in the long run with this increased limit.
Altogether, the measures enacted to alleviate the pressure of inflation should do exactly that for the modern job seeker, but the labor market still remains tight with many companies resorting to lay-offs across the board to survive the economic downturn.
Our advice? Choose a recruiter with experience navigating turbulent hiring landscapes, like those from Sabio Systems, to continue advancing your career amidst all these systemic changes.
Overall I am extremely happy with choosing Sabio Systems to help me in my new career search. I’ve been trying to get into the IT field for months and the team at Sabio were able to find me a great opportunity to get my foot in the door! Recommending them to all my friends and family and definitely will look to them for any future jobs.
– Adrian