IRS Announces Tax Inflation Adjustments For 2024 

Introduction

The Internal Revenue Service has once again updated its income tax brackets for U.S. taxpayers, citing inflation as the primary culprit behind the changes pushing tax thresholds higher.

In a press release issued November 9, 2023, the Internal Revenue Service updates taxpayers on the new reality of the U.S. economy. This press release announces increases to the tax bracket threshold of approximately 5.4% from thresholds set in 2023.

This increase of 5.4% doesn’t quite match 2023’s record-setting increase of 7%,[1] but it’s not too far off. Contrast this gain of 5.4% with the adjustment made in 2019 — a mere 1.6% increase — and it becomes clear how the high-inflation environment gripping Western nations since 2021 continues to have significant impacts across the economy.[2][3]

What is inflation?

Inflation is an economic phenomenon that occurs when money loses its purchasing power due to rising prices. Investopedia defines inflation as a “rise in prices…that means that a unit of currency effectively buys less than it did in prior periods.”[4]

Inflation is a natural feature of economies, and multiple factors contribute to inflation rates.

The surge in inflation that began in 2021 has multiple different causes itself. The economy is enormously complex, and a single event can cause ripples of change throughout the global system. The period of high inflation beginning in 2021 is due to several factors, but primarily due to

• high levels of consumer savings during the 2020 lockdown period, leading to high amounts of spending in 2021;
• a response to monetary policy, including substantial quantitative easing, enacted by central banks to stabilize the economy in 2020;
• snags in the global supply chain due to COVID, best represented by the Ever Given tanker washing ashore in the Suez Canal;[5]
• dramatic swings in the price of oil from 2020-2023;
• the ongoing Russo-Ukrainian war that began in February 2022;

These factors combined produced inflation rates unseen in developed economies since the late 1970s.[6] The International Monetary Fund reports inflation rates of 4.1% for the United States in 2023, significantly higher than the 2% “benchmark” rate that the U.S. Central Bank aims to maintain.[7][8]

Why does inflation affect tax thresholds?

The Internal Revenue Service adjusts tax thresholds to account for inflation each year. Theoretically, they also will lower them in response to deflation, a sustained drop in the price of services and goods. However, deflationary periods in developed economies are rare, typically occurring during a recession.

The IRS—and the tax regimes of all developed economies—tend to adjust tax thresholds to match inflation to combat a phenomenon known as bracket creep.

Bracket creep occurs when inflation pushes salaries into a higher tax bracket without a corresponding gain in purchasing power. In more straightforward English, your wage is more elevated in actual dollars, but because you’ve landed in a higher tax bracket, you make less than before inflation.

Economists and central bankers advocate avoiding bracket creep whenever possible, as if more taxpayers feel like their discretionary income has decreased, they will reduce spending, creating downward pressure on the economy. 

Does this change affect my income tax rate?

The changes the IRS made only affect the income tax thresholds. Income tax rates haven’t changed since President Donald Trump’s Tax and Job Cuts Act was enacted on December 22^nd, 2017.

Changes to tax rates are typically made politically by governments looking to increase revenues or provide relief on taxes to constituents or special interests.

Changes to tax thresholds are not typically enacted by law. Instead, the United States tax laws permit the IRS to issue adjustments as needed to prevent bracket creep.

Compare your income in 2023 to your projected income for 2024, then compare both to the revised thresholds for 2024 issued by the IRS. We have a list of the joint and individual filing thresholds below.

New tax bracket thresholds for 2024

Below, we’ve listed the single-filer and married couple thresholds, as most taxpayers will file under one of these procedures. For other tax configurations, please refer to the literature provided by the IRS.[9]

The new tax thresholds for 2024 when filing as a single person are as follows:

1. Income under $11,600: 10% tax rate
2. Incomes from $11,600 up to $47,149: 12%
3. Incomes above $47,150 and up to $100,524: 22%
4. Incomes over $100,525 up to $191,949: 24%
5. Incomes over $191,950 up to $243,724: 32%
6. Incomes over $243,725 and up to $609,349: 35%
7. Incomes over $609,350: 37% tax rate 

Households and couples filing jointly will file under the following tax thresholds in 2024:

Other features of 2024’s updated revenue policy

The 2024 adjustment to IRS revenue policy also adjusts multiple tax credits, deductions, and tax relief programs in the U.S. tax code.

A summary of changes is included in IRS Press Release 2023-208. Changes include a reinstatement of the Hazardous Substance Superfund rate for crude oil refineries, a phase-out of the Earned Income Tax Credit for taxpayers with three or more children, slight increases to the monthly limitations of qualified transportation fringe benefits, changes to foreign income reporting requirements as well as estate tax exclusion amounts and changes to the health flexible spending arrangement program. [10]

Good news for fleet managers: there have been no changes to the FAVR program as of today’s writing.

Conclusion: stay informed

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