Don’t let these changes fool you. Nobody should believe that the pain of inflation is going to be erased by these IRS adjustments.
The federal government’s tax collecting agency released their annual inflation adjustments this month, proving that even the IRS is not immune to inflation. These updates are an attempt to keep inflation from leading to a de facto tax increase on Americans, and a few key components of the income tax code received 7 percent increases.
The IRS typically makes small, inflation-related adjustments to the tax code each year. When inflation is relatively tame, the adjustments are moderate. The standard deduction, for instance, was increased by 3 percent in 2022 and 1 percent in 2021. The table below details the 7 percent increases for the standard deduction next year:
The other notable change is the thresholds to move into a higher tax bracket have all been adjusted upward by 7 percent, too. The IRS is attempting to ensure that wage gains due solely to inflation do not bump a taxpayer into the next (higher) tax bracket. The tables below detail the 7 percent increase each tax bracket will receive next year for married filers, single filers, and Head of Household filers:
Don’t let these changes fool you. Nobody should believe that the pain of inflation is going to be erased by these IRS adjustments. After all, a 7 percent tweak to a couple of tax code components still lags behind the 12-month change in inflation (8.2%), in the price of gasoline (18.2%), and in the price of groceries (11.2%). We also cannot forget what is fueling inflation in the first place. While taxpayers will benefit from these changes, a small break in the federal income tax burden will still pale in comparison to the damage that’s being done by skyrocketing inflation, a slowing economy, and rising interest rates.