The Sneaky Way Inflation Can Cause You to Pay Higher Taxes
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If you’re making more money this year, congrats! But how much is it really worth? Thanks to unusually high inflation, the prices of everything from groceries to pet food have increased. So while there may be more money in your pocket, it's possible you can buy less.
If that’s not enough to give you goosebumps this Halloween season, here comes “bracket creep.” This phenomenon occurs when rising income pushes you into a higher tax bracket, but inflation decreases your purchasing power.
Basically, Uncle Sam sees you’re making more, and taxes you accordingly — even though your higher earnings are not actually worth more. It’s a real case of more money, more problems.
Why high inflation could mean higher taxes
At the federal level, the IRS annually adjusts tax brackets to changes in the costs of living. In other words, the agency crunches the numbers so you get taxed at a presumably fair rate, based on the real value of your earnings.
