Don't Mess With Taxes

Ben Bernanke and crew have been concerned about inflation, but apparently the Fed can chill a bit. Today, a couple of government agencies adjusted their relevant 2008 figures based on inflation and the numbers are not that big.

First we have Social Security recipients, who no doubt will quibble with the assessment that their benefits should be increased only 2.3 percent to account for inflation, or an estimated $24 a month more. That's the smallest increase in four years.

This Associated Press story (via the Washington Post) details the effects that millions of retirees will feel from such a small hike in their monthly Social Security payments.

You can check out all the cost-of-living adjustment (COLA) figures for all Social Security related payments at this Social Security Administration's special Web page.

Inflation at the IRS, too: Meanwhile, over at the IRS, inflation will pay off a bit more for some 2008 taxpayers.

Next year, the personal exemption will go up $100 to $3,500; standard deduction amounts for all filing categories will be larger ($5,450 for single/married filing separately, $8,000 for heads of households and $10,900 for married joint filers); and the tax brackets themselves will be wider, meaning more money will be taxed at a lower rate.

The inflation tax news is mixed, however, for folks saving for retirement, which obviously is critical with such paltry COLAs for federal benefits.

If you plan to put money into an IRA next year, the income level at which your contribution amount is phased out is a bit higher, for both traditional and Roth accounts. And the income limit for the savers credit, a tax break for lower-income workers who put money aside for retirement, also is bumped up in all filing categories.

But if you have a 401(k), inflation wasn't high enough to warrant any increase from the 2007 contribution amounts for these workplace retirement plans.

And about your Social Security. To fund that program, next year the IRS will collect 6.2 percent, from both workers and employers, on the first $102,000 earned. That means a highly paid worker could put as much as $6,324 into the system, with an equal amount matched by his or her company.

You can see how the taxable wage base has grown over the years at this Social Security Administration Web page.

Find more information on IRS inflation adjustments in this release. Get the exact figures on all 2008 inflation adjusted tax figures in this IRS document.

And for an historical look at inflation and taxes, check out this item from the Tax Foundation. Those folks saw today's numbers coming, noting, "The time period of September 2006 through August 2007 had relatively mild inflation compared to the previous two periods, resulting in much smaller inflation adjustments for tax year 2008 than we saw in the previous two adjustments."