The Internal Revenue Service (IRS) said that it just announced that it is introducing new income limits for seven tax brackets. Thus, it will adjust the thresholds to account for the impact of inflation. This will help by providing a break to most taxpayers on their taxes in 2024.
The IRS also said that it is adjusting the tax bracket upwards by 5.4%. While making this adjustment, the tax agency is relying on a formula which is based on the consumer price index. This helps to track the costs of a basket of goods and services that consumers typically purchase.
These are 2024 limits, and they come after the IRS expanded its tax brackets last year by a whopping 7%. They said that this step was due to high inflation last year.
According to Yahoo Finance,
“The IRS adjusts tax brackets annually — as well as many other provisions, such as retirement fund contribution limits — to counter the impact of inflation. That can help avoid so-called “bracket creep,” or when workers are pushed into higher tax brackets due to cost-of-living adjustments or raises even though their standard of living may have remained the same.”
If more taxable income falls into the lower bracket due to higher thresholds, workers will also be able to get a tax break. Taxpayers will need to file their taxes for 2024 in early 2025.
In the United States, the tax rate is progressive, that is, the higher you earn, the higher your tax rate. Despite that, there is a misconception that workers will have to pay the highest tax rate they are subject to on every dollar they earn as income. This is not true. Basically, each tax rate applies to a worker’s income that falls within each tax bracket.
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