The impact of inflation extends beyond consumer goods, reaching into the realm of taxation. The Internal Revenue Service IRS has once again made adjustments to tax brackets for the upcoming tax year. Daniel Rohr, Managing Shareholder and CPA/PFS, EA, M.S. Tax of Rohr & Associates, highlights the recurring nature of these adjustments, noting that following last year’s 7% increase in tax brackets, further updates were anticipated.
The IRS states its commitment to maintaining a fair and responsive tax system in the face of economic shifts. Rohr anticipates that the 7% inflation update from the previous year might have a more significant impact in the 2023 tax season than the upcoming 5% adjustment. Looking ahead, he speculates that a further decline in inflation could result in less drastic adjustments to tax brackets.
IRS adjusts tax Brackets in response to inflation trends
“They do it every single year. Last year, at the end of 2022, when they changed it to 2023, it was actually a 7% increase. And so, it matches that inflation has been coming down,” Rohr explains. In recent times, inflation has been on an upward trajectory, causing fluctuations in prices across various commodities, from groceries to gasoline.
According to the IRS’s Inflation Reduction Act, tax brackets for both individual and married filers will undergo a reduction of approximately 5.4% across various income levels. This translates to significant changes in tax brackets for individual and married filers:
- 10%: Taxable income up to $11,600
- 12%: Taxable income over $11,600
- 22%: Taxable income over $47,150
- 24%: Taxable income over $100,525
- 32%: Taxable income over $191,950
- 35%: Taxable income over $243,725
- 37%: Taxable income over $609,350
Rohr underscores that these adjustments result in a lower rate of taxable income, potentially enabling individuals to retain more of their earnings. To illustrate, he provides an example: “So if you made, as an example, $80,000 in taxable income in 2024, 80,000 in 2023, the total tax impact because of this change is $255. So it’s not a huge impact. But of course, if you made $300,000 as a married couple, it’d be higher savings on a dollar basis.”
Ashley shares a similar sentiment, expressing hope that these adjustments will contribute to increased consumer spending and economic growth. She emphasizes the potential positive effects, stating, “If you’re thinking about like macroeconomics, more money in your pocket, you’re going to have more availability to spend. You’re going to be a stronger consumer. That should stimulate our economy to grow, hopefully.”