The income tax brackets adjustments for inflation have been announced for 2024.

Minnesota

Minnesota’s income tax brackets are adjusted for inflation every year, based on the chained consumer price index, a specific inflation metric that is designed to measure inflation on consumers every day spending power. For 2024, Minnesota brackets will go up 5.376%. The standard deduction will go up as well, also adjusted for inflation by just over 5%.

Federal

The federal tax metrics are also indexed for inflation. There will be a 6.2% increase in the standard deduction for Married Filing Jointly, and in general a 5.4% increase on the tax brackets based on the consumer price index (it was 7% inflation to go from 2022 to 2023).

Implications

These 5+ and 6+% increases that are indexed to inflation measures mean that if you are getting a 2024 4% pay raise part-way through 2024 (and a 6% raise for 2023), you’ve been losing ground for at least these two years in a row.

Your wages not keeping up with the tax bracket movement does mean you are paying less in taxes, as more of your money is taxed in a lower bracket. But we shouldn’t be focused on letting the tax tail wag the dog. Know when your pay raise is really a pay cut in disguise. If your wages are not keeping up with inflation, your purchasing power year over year is less. Do you really think you are providing less value to your employer in 2024 than you did in 2022 or 2023?