Paying and filing taxes isn’t something that the majority of Americans look forward to.
But inflation cannot only reduce your spending power, it can also mean higher taxes.
Now the IRS has just announced these huge changes that will likely affect the tax return of every single American.
IRS adjusts for inflation
The IRS has just announced that it will make higher adjustments for inflation applying to the 2024 tax year.
This change could potentially give Americans an opportunity to increase their total take-home pay next year.
These higher limits apply to the federal income tax bracket and standard deductions and are intended to avoid something called a “bracket creep.”
Bracket creep occurs when taxpayers get pushed into higher-income brackets, even though their purchasing power is either unchanged or diminished because of high inflation.
While the IRS typically makes these adjustments every year, the increases are more significant and have a greater impact on taxpayers this year because of the inflation problem.
Overall, tax brackets will shift higher by around 5.4%, which could mean significant savings for millions of workers across all income brackets in the United States.
It’s important to note that these inflation-adjusted changes will apply to the 2024 tax year, which means it applies to returns filed in 2025.
A majority of taxpayers use the standard deduction, which reduces the amount of income that someone must pay taxes on.
The new standard deduction rises to $29,000, up from $27,000 in 2024 for married couples filing jointly, which equals a 5.4% adjustment.
The new maximum for individuals will be $14,600 for 2024, up from $13,850.
People filing as head of household will see the standard deduction increase to $21,900 in 2024, which is up from $20,800.
Tax brackets for single individuals will be 10% of taxable income up to $11,600, 12% of taxable income over $11,600, and 22% of taxable income over $47,150.
The top tax bracket will remain at 37%, which applies to taxable income over $609,350.
For joint filers, the new deduction will be 10% of taxable income up to $23,200 and 12% of taxable income over $23,300.
The amount increases to 22% of taxable income over $94,300 and continues from there.
More changes from the IRS
The IRS announced that it is making other tax provisions, including increasing the threshold for the earned income tax credit.
Families will now be eligible to receive $7,830 if they have three or more qualifying children.
This is an increase from $7,430 for tax year 2023.
Employees will also be allowed to contribute more to their health flexible spending accounts, and the new maximum contribution will rise by around $150 to $3,200.
Informed American will keep you up-to-date on any developments to this ongoing story.