Inflation Adjustments in 2009 to be Largest Since 1991

The September report of the Consumer Price Index (CPI) from BLS means that we can now calculate what the values of the various tax parameters for next year will be using the complicated formulae that the IRS employs. The relevant CPI for the 2009 adjustment is the average CPI value for Sept. 2007 through Aug. 2008. This turned out to be 213.605 this year. Last year's was 204.8725, meaning that inflation in that time period was 4.26 percent, the highest on record since 1991. The 1991 figure (Sept. 1990 – Aug. 1991) was 5.28 percent. And with the way the Fed is printing money right now, we may beat that record next year.

But what does this mean for you, the taxpayer? It means that even if your wage stays the same in January, your take-home pay will jump a little bit. And that jump will be relatively high this year compared to any other in the past 16 years.

For example, the standard deduction for singles in 2008 was $5,450. In 2009, it will be $5,700, which is a huge increase. In 2007, the standard deduction was merely $5,350. That means the married standard deduction will be $11,400 in 2009, up from $10,900 this year.

The personal exemption is set to jump from $3,500 to $3,650.

More to come on this…