As the new year begins, taxpayers may notice a pleasant difference in their paychecks — they might be slightly bigger. This change is due to the annual adjustments to tax brackets, which have been updated for 2024.

The IRS adjusts tax brackets each year to account for inflation. This process, known as indexing, helps prevent what is called “bracket creep.” Bracket creep occurs when inflation pushes taxpayers into higher tax brackets or reduces the value of credits, deductions, and exemptions.

For 2024, the tax bracket adjustments are particularly important because recent inflation rates have been higher than the historical average. Thus, the IRS has increased the brackets more than usual to keep pace with inflation.

How does this affect your paycheck? If your income stays the same but the tax brackets increase, a smaller portion of your income will be considered taxable at higher rates. For instance, if you were at the high end of a tax bracket last year and this year’s adjustments have shifted that bracket upwards, a part of your income will effectively be taxed at a lower rate.

Let’s take a closer look at what changed:

1.The Standard Deduction has increased – The standard deduction is higher in 2024 than it was in 2023. This means that if you do not itemize deductions on your taxes, you can reduce your taxable income by this increased amount.

2.Wider Tax Brackets – With widened tax brackets, more of your income falls into lower-tax segments which reduces your overall tax liability and boosts net pay.

3.Increased Credits and Deductions – Certain tax credits and deductions are also indexed for inflation. Increases in these could further lower your tax liability or increase your potential refund when you file next year.

In conclusion, while nobody enjoys thinking about taxes, it’s important to understand how they can impact your take-home pay. Pay close attention to changes in 2024; they may provide you with a bit more financial breathing room throughout the year.