How "Stealth Tax Hikes" Can Cost You Money Each Year

A 2018 change in the way tax items are adjusted for inflation leads to less tax decreases over time. And some tax items aren't adjusted for inflation at all.

stealth bomber
(Image credit: Getty Images)

The high inflation numbers from the past 12 months or so are showing up everywhere, from rising rents to soaring food prices. They can also affect how much you'll pay in federal income taxes for 2023. That's because many federal tax items are adjusted each year to account for prior-year inflation, including the income tax brackets, standard deductions, the income levels for figuring whether your long-term capital gains are taxed at 0%, 15% or 20%, and the IRA and 401(k) contribution limits.

These tax items and many other tax credits and deductions will be much higher in 2023 because of high inflation for the period October 1, 2021, through September 30, 2022. But not all tax breaks are adjusted for inflation. And the use of a different inflation standard to adjust tax breaks since 2018 means that the annual adjustments to tax breaks that are adjusted for inflation are smaller than they would have been if the older inflation computation was still used. As a result, taxpayers are starting to see the results of what some call "stealth tax hikes."

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Joy Taylor
Editor, The Kiplinger Tax Letter

Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to kiplinger.com and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.