Next year, some taxpayers may receive a tax break due to the IRS’s annual inflation adjustment of tax brackets. While the new brackets for 2024 have not yet been announced, this information is expected to be released by the IRS in the coming days or weeks. Bloomberg Tax has also provided its own forecast for the new tax brackets and other policies adjusted for higher prices.
Each year, the IRS uses a formula based on the consumer price index to make adjustments to various tax policies. This index tracks the prices of goods and services typically purchased by consumers. Last year, tax brackets were boosted by a historically large 7% due to the highest inflation in 40 years. However, inflation has eased this year, so the annual boost is expected to be more moderate, with brackets rising by about 5.4%.
By setting higher thresholds, the IRS aims to prevent “bracket creep,” which occurs when individuals are pushed into higher tax brackets due to cost-of-living adjustments meant to offset inflation. These adjustments allow workers to maintain their standard of living without facing higher taxes. Additionally, higher thresholds can help taxpayers reduce their overall tax liability by potentially placing more of their income in a lower tax bracket.
According to Steve Grodnitzky of Bloomberg Tax, the income tax brackets for 2023 saw an increase in dollar amounts. For example, the lowest bracket for single individuals went from up to $22,000 to up to $23,200. This change will affect how much individuals are taxed.
Stay tuned for the official announcement of the new tax brackets for 2024 and other adjustments by the IRS!
