How are tax calculations adjusted for inflation when projected into the future?
Discover how Income Lab correctly factors in inflation when calculating taxes for accurate financial planning.
Last published on: November 19, 2025
Each year, certain income tax amounts and thresholds are adjusted for inflation by the US Federal government (and certain states, if the state has personal income tax). Since future inflation adjustments are not known ahead of time, Income Lab software projects these future tax values in a plan using the plan's assumed inflation rate(s).
However, not all tax values are adjusted for inflation over time. Income Lab software correctly models these values as fixed in nominal terms over time (and, therefore, going down in real terms over time). When a tax value is not adjusted for inflation over time, it has the effect of increasing the real, inflation-adjusted amount that is taxed in the future compared to today. For example, thresholds for taxability of Social Security are not adjusted for inflation (and have not been since taxability was introduced in the 1980s). That means that, over time, more and more Social Security benefits will be subject to taxation simply through the effects of inflation.
The table below shows which Federal values are adjusted for inflation and which are not. These differences are reflected in Income Lab software and plan projections.
| Adjusted for Inflation | Not Adjusted for Inflation |
| Ordinary and capital gains bracket thresholds | Social Security taxability thresholds |
| Standard deductions | Net investment income tax (NIIT) thresholds |
| Qualified Charitable Distribution (QCD) limit | Thresholds for extra ACA Medicare tax on earnings |
| LTC premium deduction caps | “Senior Bonus” amounts and thresholds |
| OASDI (Social Security and Medicare) tax max earnings cap | SALT deduction cap (2025-2029)* |
| Medicare premium amounts & thresholds (IRMAA) |
* SALT deduction caps return to $10,000 in 2030, but between 2025- and 2029 increase by set amounts (1%). These exact amounts are reflected in Income Lab.
Each year tax values are updated on January 1 in Income Lab software to reflect the new year's actual values.