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Inflation affects state taxes, too

The Internal Revenue Service recently released its figures on how inflation will affect many federal tax provisions in 2015.

But the cost of living also affects states. And these jurisdictions' tax departments deal with annual price increases in different ways.

Thanks to the Tax Foundation map below, you can see the various state tax approaches to inflation.

State Tax Bracket Inflation Adjustments_Tax Foundation
Click image for a larger view.

The Washington, D.C.-based tax think tank notes that:

  • 23 states fully index brackets to inflation; this number includes the nine states (each marked by an asterisk and listed in the "Notes" box in the map) with single-rate income taxes, which are by definition inflation-indexed).
  • California and Oregon partially index their brackets.
  • 19 states, along with the District of Columbia, with multiple brackets do not index at all.

When tax brackets aren't indexed for inflation, note the Tax Foundation's Scott Drenkard and Richard Borean, taxpayers can encounter bracket creep. This happens when a higher income bumps a taxpayer into the next tax bracket, even if that higher income is merely keeping pace with inflation.

Practically speaking, absent inflation adjustments many taxpayers face a tax increase without any legislation being passed.

Have you seen inflation's effects, for good or ill, on your state taxes?

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