The rapidly rising cost of food, energy and other daily staples in the U.S. could allow many Americans to reduce their tax bills next year, the IRS confirmed on Tuesday, October 18th.
Tax rates are adjusted for inflation, which in typical times means incremental movements in the thresholds for what income is taxed at what rate. But after a year that brought America’s fastest price growth in four decades, the shift in rates is far more notable: an increase of about 7%.
Other parts of the tax code will also be affected by the inflation adjustment. Those include the standard deduction Americans can claim on their tax returns.
The shift would be slightly larger if not for a change Republicans made as part of President Donald Trump’s tax overhaul that was passed in 2017. It tied rates to a measure of inflation, called the chained consumer price index, that typically rises more slowly than the standard consumer price index. In September, chained consumer price index was up about one-quarter of a percentage point less, compared with the previous year, than the standard consumer price index.
In dollar figures, the shift will be largest at the highest end of the income spectrum, although all seven income brackets will adjust for inflation. The top income tax rate of 37% will apply next year to individuals earning $578,125 — or $693,750 for married couples who file joint returns. That is up from $539,900 for individuals this year. The difference: Nearly $40,000 worth of individual income is eligible to be taxed next year at a lower rate of 35%.
Middle-class workers and lower-income earners will also see benefits. The 35% rate will now start above $231,250 for individuals and $462,500 for married couples. The 32% rate will start above incomes of $182,100 for individuals and $364,200 for couples.
The 24% rate will apply above individual incomes of $95,375 — $190,750 for couples — and the 22% rate starts above $44,725 for individuals and $89,450 for couples. The 12% rate will apply to individual incomes above $11,000 and $22,000 for married couples. The lowest rate, 10%, will apply to incomes up to those amounts.
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