As the IRS unveils the 2024 and 2025 tax brackets, there’s good news for American taxpayers who have weathered the storm of pandemic-related tax changes and the challenges posed by record inflation in 2023.
The IRS’s latest adjustments to tax thresholds and deductions aim to provide a bit of relief, preventing taxpayers from being unduly burdened by the impact of inflation on their standard of living.
When filing 2022 taxes, many Americans faced the expiration of pandemic-related tax breaks, leading to larger tax bills.
The subsequent onslaught of record inflation in 2023 heightened the phenomenon known as “bracket creep.” This occurs when cost-of-living adjustments increase wages, pushing individuals into higher tax brackets without a corresponding improvement in their standard of living.
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The IRS Responds to Inflation
To counteract the effects of inflation, the IRS raised all tax thresholds for the 2023 tax year by an unusually high 7 percent.
Although tax rates remained unchanged at 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent, the adjustment ensured that taxpayers did not face an unintended tax increase due to inflation-driven wage growth.
The IRS’s approach involves maintaining existing tax rates while adjusting the income levels subjected to each speed.
For example, a married couple earning $200,000 in both 2022 and 2023 would experience a $900 tax savings in 2023 because more of their income falls into lower tax brackets.
In a recent update, the IRS released the tax brackets for the 2024 tax year, offering taxpayers additional relief.
The tax thresholds for all brackets were raised by 5.4 percent, safeguarding individuals and couples from being pushed into higher tax brackets solely due to cost-of-living increases.
Recognizing the importance of standard deductions, the IRS has also raised them to counteract the impact of inflation. Over three years, there’s a notable increase in standard deductions for both individuals and married couples filing jointly:
- Individual Standard Deduction:
- 2022 tax year — $12,950
- 2023 tax year — $13,850
- 2024 tax year — $14,600
- Married Filing Jointly Standard Deduction:
- 2022 tax year — $25,900
- 2023 tax year — $27,700
- 2024 tax year — $29,200
It’s essential to highlight that more than 85 percent of Americans opt for the standard deduction. With these adjustments, the IRS aims to alleviate the financial strain on taxpayers during the 2023 and 2024 tax years.
The hope is that the raised tax thresholds and deductions will mitigate the impact of inflation, offering a measure of financial relief when filing taxes in the coming years.
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