Higher Inflation Could Mean Smaller Tax Bills for Some

The latest data from the U.S. Bureau of Labor Statistics doubles down on what has become 2022’s loudest refrain: Sometimes the race to beat inflation is just a slow crawl.

And while persistently high inflation is hardly cheerful news, a set of annual adjustments that are tied to an inflation index could provide relief in one unexpected area — taxes.

Keeping bracket creep at bay

Typically in early November, the IRS releases a swath of adjustments to various tax provisions, including tax brackets, standard deductions and certain tax credits for the forthcoming tax year.

These adjustments are tied to the Chained Consumer Price Index for All Urban Consumers, or C-CPI-U, and the IRS’ goal is to prevent bracket creep. In other words, these annual tweaks allow the IRS to ensure that inflation doesn’t eat away at the original basis for a tax credit or threshold.

Take, for example, a married couple filing jointly with a taxable income of $80,000. In 2022, this would put the taxpayers in…

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This article was written by Sabrina Parys and originally published on www.nerdwallet.com