Bracket Creep

Personal Finance

Bracket creep is the phenomenon where inflation pushes taxpayers into higher tax brackets even though their real (inflation-adjusted) income hasn't risen. The Tax Cuts and Jobs Act indexed federal brackets to inflation (CPI) starting in 2018, largely eliminating federal bracket creep at the IRS level. But state taxes, AMT, Social Security taxation thresholds, and other items may not be inflation-indexed and still cause creep. Bracket creep matters for high earners near bracket boundaries — a 3% raise that crosses a threshold can mean an effective marginal rate spike on the bracket-crossing dollars.