Inflation has been a headwind for many of us in many areas of our lives over the past few years. One way it has helped us (perhaps without us even noticing) is its impact on income taxes. I explained this dynamic to a client earlier this week and thought it was worth pointing out here as well
The IRS recently announced the 2024 tax brackets and deduction levels and once again, the bracket cut-offs, as well as the standard deduction amounts, have risen. Why? They are inflation adjusted.
Let’s look at brackets first. Remember, the IRS applies different tax rates for different buckets of taxable income. Due to inflation, the cut-off for these brackets has been rising – resulting in less income being taxed at higher rates (more income will fall into the lower rates buckets as they get wider).
In 2023, the top bracket doesn’t take hold until taxable income of $609,350 (single) and $731,200 (married couple). That’s an increase of 5.4% from 2023’s cutoffs which were $578,125 and $693,750 respectively. That same % increase applies to all the brackets – you can see the full tables here
Standard deduction amounts are also adjusted for inflation. The standard deduction for a married couple will be $29,200 in 2024, an increase of $1,500 or 5.5% from the prior year. For single filers the deduction rose by the same percent, reaching $14,600 in 2024.
There you have it – one (perhaps hidden) benefit of inflationary times!
Leave a note