Many individual income tax payers in the state will see more savings on their tax returns next year with the cost-of-living adjustments made by the state and federal governments.
Maine Revenue Services released a tax alert on Thursday detailing the rates for single people, married persons filing separately, unmarried or legally separated, and married individuals filing joint returns in 2023. The department makes annual inflation adjustments, but this year they were higher than in the past five years as inflation continues at a 40-year high rate.
The changes will prevent Mainers whose pay increased to keep up with inflation from having to pay a higher percentage of their income in taxes, a Maine Department of Administrative and Financial Services spokesperson said. Taxpayers with no changes in the sources and level of their income from 2022 to 2023 will see a tax cut.
The standard deduction, which lowers taxable income, is up by the highest single-year amount since 2019. And the lowest earnings level at which Mainers are taxed has risen, giving the hardest pressed people a bit of a break on their tax rate.
Single filers and married people filing separately will each see their standard deduction rise $900, up almost 7 percent compared with 2022 to $13,850 next year. The deduction for married people filing jointly will go up $1,800 to $27,700, a 6.5 percent rise. And a head of household will get $1,400 more next year at $20,800, up 7.22 percent. There are additional deductions for those over age 65 who are blind.
Those increases are not quite keeping up with inflation numbers, which rose from 1.4 percent in January 2021 to 7.5 percent this January and to 8.2 percent in October. The Federal Reserve continues to increase its short-term lending rate, which affects home and other consumer loan rates, having bumped it up to 3.75 percent to 4 percent on Wednesday in an effort to cool inflation. It plans to keep raising rates but at a slower pace.
Maine also raised taxable income brackets. Single Mainers and married persons filing separately who are making less than $23,000 in 2022 must pay 5.8 percent in taxable income. Next year, they can make $1,500 more, or 6.5 percent higher, and still be charged at that rate. In 2022, they would have to pay 6.75 percent for the extra $1,500 in income.
Single filers and married persons filing separately making $23,000 to $54,450 will have to pay $1,334, plus 6.75 percent for any excess over $23,000, in 2022. Those numbers are being bumped up next year to $24,500 to $58,050, with the same percentage to be paid for any excess over $24,500.
The top tax bracket for single filers and married persons filing separately sets the rate for taxable income of $58,050 or more at $3,686, plus 7.15 percent for any excess over $58,050.
The median household income in Maine is $59,489 and for individuals it is $30,850, according to 2020 US Census data. Seniors getting Social Security benefits will get an 8.7 percent boost to their checks starting in January, the highest raise in 40 years. It amounts to about $146 per month more in their checks, according to AARP. Social Security income is not taxable in Maine.
