The IRS is increasing tax brackets by approximately 7% for each type of tax filer, such as those filing separately or as married couples. Every year, the IRS adjusts tax rates, as required by law, but not all tax rates must be adjusted for inflation. As a result, higher provision thresholds could provide relief to some taxpayers who are in lower tax brackets, Tim Steffen, Baird's director of tax planning, said in an email. Only about 14% of taxpayers itemized their taxes after the approval of the tax reform, or a 17 percentage point drop compared to before the law, according to the Tax Foundation.
Higher limits are intended to prevent the increase in brackets due to inflation, which can push workers who received annual wage increases due to the cost of living to higher tax categories, even though their standard of living has not changed. About 1 in 5 eligible workers lose this valuable tax benefit, which is credited with reducing poverty for working families along with the child tax credit. Rate adjustments also prevent what is known as flowing between tranches, a scenario in which a taxpayer is forced to move to a higher tax bracket simply because their income increased to keep up with inflation.
