Sounds pretty scary, doesn’t it? Well it is. Each year, the IRS makes adjustments for inflation to more than 40 different tax provisions. The idea is to prevent what is known as “bracket creep.” Without these annual adjustments, you could find yourself creeping into a higher income tax bracket — or lose value from credits and deductions.
In the past, the IRS used the Consumer Price Index to set the annual adjustments. Under the recent tax reform legislation, the IRS will now use what is known as the Chained Consumer Price Index (C-CPI), also known as chain-weighted CPI or chain-linked CPI.
C-CPI will be used to adjust income thresholds, deduction amounts and credit values accordingly. The chart here from the Tax Policy Center shows inflation-adjusted income limits for the various tax brackets.
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