What is a Cost-of-living adjustment?
Cost-of-living adjustment is an annual inflation-based increase applied to tax brackets, standard deductions, contribution limits, and various benefit thresholds to prevent bracket creep and maintain real purchasing power over time. Under the One Big Beautiful Bill Act, many provisions include cost-of-living adjustments using specific base years for indexing calculations, typically rounding to the nearest $50 or $100 increment, depending on the provision. These adjustments ensure that benefits, such as employer student loan assistance limits, retirement contribution caps, and Health savings account maximums, grow with inflation rather than eroding in value over time.
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