Last month, the IRS announced several key tax code changes. And for some, these changes could impact how much tax is withheld from your paycheck.
For 2024, federal income tax brackets and the standard deduction are both increasing. This change is in response to sticky inflation, which has kept prices high all year. The higher amounts will apply to your 2024 taxes, which you’ll file in 2025.
It’s normal for the IRS to make tax code changes each year to account for inflation. This also helps prevent “tax bracket creep,” which could push you into a higher tax bracket, despite inflation eating into your wages. So, even if you make more money in 2024, factoring inflation into the tax code could prevent you from being pushed into a higher tax bracket — and may even bring you down to a lower bracket. If your income remains the same from 2023 to 2024, you might actually find yourself bringing home slightly more each payday. Here’s why.
How tax code changes could affect your paycheck
When the IRS raises federal income tax brackets, you might fall into a lower tax bracket than you did the year before — particularly if your income has stayed the same.
For example, if you made $45,000 in 2023, you would have fallen into the 22% tax bracket for that tax year. But if your income remains at $45,000 in 2024, you’ll drop down to the 12% bracket. That means you’ll be on the hook for less federal tax next year and will have less money withdrawn from your paycheck.
If you make more in 2024 than you did in 2023, the amount your pay has increased will determine where you fall. It’s possible you’ll still fall into a lower tax bracket, based on the new changes. But you may remain in the same bracket or move up to a higher one.
In either scenario, it’s important to understand that since inflation is still lingering, you’re likely feeling the sting of high prices in different ways. So, even if you drop into a lower tax bracket and take home a slightly bigger paycheck next year, it’s likely inflation is already eating into the amount you pay for housing, gas, food or other essentials.
