Last week, the IRS released its calculation of the 2015 tax brackets and other parameters.
Every year, the IRS adjusts more than 40 taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. provisions for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. . This is done to prevent what is called “bracket creepBracket creep occurs when inflation pushes taxpayers into higher income tax brackets or reduces the value of credits, deductions, and exemptions. Bracket creep results in an increase in income taxes without an increase in real income. Many tax provisions—both at the federal and state level—are adjusted for inflation. .” This is the phenomenon by which people are pushed into higher income tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. s or have reduced value from credits or deductions due to inflation instead of an actual increase in real income.
The IRS uses the Consumer Price Index (CPI) to calculate the past year’s inflation and adjusts income thresholds, deduction amounts, and credit values accordingly.
| Rate | Single Filers | Married Joint Filers | Head of Household Filers |
|---|---|---|---|
| 10% | $0 to $9,225 | $0 to $18,450 | $0 to $13,150 |
| 15% | $9,225 to $37,450 | $18,450 to $74,900 | $13,150 to $50,200 |
| 25% | $37,450 to $90,750 | $74,900 to $151,200 | $50,200 to $129,600 |
| 28% | $90,750 to $189,300 | $151,200 to $230,450 | $129,600 to $209,850 |
| 33% | $189,300 to $411,500 | $230,450 to $411,500 | $209,850 to $411,500 |
| 35% | $411,500 to $413,200 | $411,500 to $464,850 | $411,500 to $439,000 |
| 39.6% | $413,200+ | $464,850+ | $439,000+ |
Since the method by which the IRS adjusts tax provisions are written into law, we calculated these adjustments earlier last month when the final CPI number of FY 2014 was released.
For more inflation-adjusted provisions and an explanation of how the IRS does this, here
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