How Will Rising Inflation Affect My Taxes?

by Madison Miller
how-will-rising-inflation-affect-my-taxes

As tax season is quickly approaching, many people are wondering if there are going to be any key differences or discrepancies for the 2021 filing season.

If you’ve been to the grocery store lately, you likely would have noticed that there’s an increase in day-to-day prices for a variety of everyday goods. Now, experts are also saying that inflation, which is on the rise, could impact some people’s tax bills as well.

Tax Season and Inflation Correlation

For reference, the consumer price index has gone up by 7% in December in comparison to last year. It hasn’t increased this much since 1982. New cars went up 11% and fast-food restaurants 7.9%.

For taxpayers, you may start to notice this high inflation rate.

According to CNBC, you can check out your taxes owed based on your taxable income and your marital status for 2021. For example, if your taxable income is $19,901 to $81,050, you would owe about $1,990 plus 12% of the amount over $19,900. That’s if you’re a married couple and you’re filing together.

If you’re single and your taxable income is $40,526 to $86,375, for example, your taxes owed would be $4,664 plus 22% of the amount over $40,525.

Also, there have been higher state taxes in places without adjustments for inflation. There is also the fixed provision of a 3.8% surcharge on investment income that has been in place for a while.

Tough Overall Tax Season Ahead

When it comes to tax season this year, it seems like everyone may have a harder time.

Americans may be needed their tax returns as quickly as possible this year, compared to past years. This has to do with the ongoing COVID-19 pandemic that has financially taken a toll on some people, for example.

Now, the IRS is warning people that it will be a difficult process seeing as the pandemic has caused the agency to have historical underfunding. This lack of funding and employees could create a delay in the ability to get refund checks out on time.

According to Business Insider, during the first six months of 2021, there were less than 15,000 people working to take the 240 million calls to the IRS. That’s one person for 16,000 calls when you break it down.

It may be a frustrating time for both sides. There are ways to get ahead of the situation, however. The IRS said that the agency would start accepting and processing the 2021 tax returns starting on January 24 instead.

This is so the agency can have more time to make sure things run smoothly.

“Planning for the nation’s filing season process is a massive undertaking, and IRS teams have been working non-stop these past several months to prepare … Filing electronically with direct deposit and avoiding a paper tax return is more important than ever this year. And we urge extra attention to those who received an Economic Impact Payment or an advance Child Tax Credit last year. People should make sure they report the correct amount on their tax return to avoid delays,” the IRS wrote in a news statement.

Outsider.com