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INFLATION RELIEF: IRS adjusts tax brackets for 2024

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The Internal Revenue Service (IRS) has released new tax brackets for the 2024 tax year, which could provide a financial reprieve for many Americans when filing taxes in 2024 and 2025.


This announcement comes after the expiration of several pandemic tax breaks and a period of record inflation in 2023, leading to concerns about “bracket creep.” This phenomenon occurs when cost-of-living adjustments push taxpayers into higher tax brackets without an actual increase in their standard of living due to inflation.

To counter this, the IRS has increased all tax thresholds by 7% for the 2023 tax year, a significant adjustment reflecting the high inflation rates experienced. Although the existing tax rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37% remain unchanged, the income amounts taxed at each rate have been revised. For instance, a married couple earning $200,000 will see a tax saving of $900 in April when filing for 2023, as more of their income will fall into a lower tax bracket.

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Furthermore, the IRS recently announced adjustments for the 2024 tax year, to be filed in 2025, raising the tax thresholds for all brackets by 5.4%. This adjustment aims to prevent taxpayers from being pushed into higher tax brackets due to cost-of-living increases.

Additionally, the standard deduction is set to rise across the next three years, with individual standard deductions increasing from $12,950 in the 2022 tax year to $14,600 in the 2024 tax year, and married filing jointly standard deductions going from $25,900 to $29,200 in the same period. Given that over 85% of Americans take the standard deduction, these changes are expected to ease the financial burden for many when filing for the 2023 and 2024 tax years.



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