Authored by Tom Ozimek via The Epoch Times (emphasis ours),
The Internal Revenue Service has announced its annual tax inflation adjustments for 2024, including new income limits for seven tax brackets.
The Internal Revenue Service (IRS) has disclosed the annual inflation adjustments affecting over 60 tax provisions for the upcoming 2024 tax year, including an increase in the standard deduction and new income limits for seven tax brackets.
The federal agency said in a Nov. 9 announcement that a string of new annual inflation adjustments will impact the 2024 tax year, potentially bringing a boost to your paycheck.
The IRS adjusts tax rates each year to take into account the higher cost of living and with price pressures remaining abnormally elevated, many inflation-weary Americans are hoping for some relief at tax time.
The standard deduction, which is typically used by people who don't itemize their taxes, raises the amount of income people can earn before they have to hand some of it over to the government through taxes.
Under the IRS's newly announced annual inflation adjustments, the standard deduction for married couples filing jointly in 2024 is $29,200, up $1,500, or 5.4 percent from the prior year. This year's increase is smaller than last year's (which was $1,800, or 7 percent greater) because the pace of inflation has slowed somewhat from last year's eye-watering levels.
For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, up $750. For heads of households, the standard deduction will be $21,900 for the tax year 2024, up $1,100 from 2023, marking a 5.4 percent increase (less than last year's 7.4 percent bump).
Tax Bracket Changes
While the tax rates in percentage terms remain unchanged for the tax year 2024, the income limits at which they kick in have been changed.
The top marginal rate, or the highest tax rate based on income, remains at 37 percent for individual single taxpayers with incomes greater than $609,350, or $731,200 for married couples filing jointly.
The lowest rate is 10 percent, and applies to single individuals with incomes of $11,600 or less and married couples earning $23,200 or less.
The other rates are:
- 35 percent for incomes over $243,725 (or $487,450 for married couples filing jointly),
- 32 percent for incomes over $191,950 (or $383,900 for married couples filing jointly),
- 24 percent for incomes over $100,525 (or $201,050 for married couples filing jointly),
- 22 percent for incomes over $47,150 (or $94,300 for married couples filing jointly),
- 12 percent for incomes over $11,600 ($23,200 for married couples filing jointly).
Overall, the income limits for the seven tax brackets have been raised by 5.4 percent for the 2024 tax year compared to last year.
Alternative Minimum Tax
For single filers, the Alternative Minimum Tax (AMT) exemption amount has been raised to $85,700 for the 2024 tax year, up from $81,300 for the prior year.
This is the threshold level at which taxpayers become subject to the AMT, a separate tax scheme with its own set of rules and rates meant to ensure that higher-income individuals and corporations pay a minimum amount of tax regardless of deductions or credits.
For married couples filing jointly, the AMT exemption amount has been raised to $133,300 for the 2024 tax year.
The AMT exemption amount for tax year 2024 starts to phase out at $609,350 for single filers and at $1,218,700 for married couples filing jointly.
Earned Income Tax Credit
The IRS has raised the maximum amount for households who claim the Earned Income Tax Credit (EITC) to $7,830 for the tax year 2024 for individuals who have at least three qualifying children. In the tax year 2023, or the current tax year, this was $7,430.
Last year, the average claimed EITC amount was more than $2,000, but around 20 percent of those entitled to the credit didn't claim it, according to the IRS.
People particularly prone to overlooking the tax credit include those living in nontraditional homes (such as a grandparent raising a grandchild), those whose earnings declined or whose marital or parental status changed, people living in rural areas, veterans, the self-employed, and those with earnings below the tax return filing requirement.
Since navigating EITC eligibility can be tricky due to its complexity, the IRS has a tool called the EITC Assistant that people can use to check if they qualify and how much they can expect to get.
Flexible Spending Arrangements
For the 2024 tax year, the dollar limitation for employee salary reductions for flexible spending arrangement contributions increases to $3,200, up from the current tax year's threshold of $3,050.
The flexible spending account, also known as a flexible spending arrangement, allows workers to contribute a portion of their regular earnings, up to a limit set by the IRS, into an account that can be used to pay for certain health care costs.
The funds taken from the account are not subject to income and payroll taxes, and so they offer certain tax advantages.
Other Notable Adjustments
In tax year 2024, other notable changes include higher Medical Savings Account (MSA) deductibles and out-of-pocket expense limits.
For self-only coverage, the deductible range is $2,800 to $4,150, and the maximum out-of-pocket expense is $5,550. Family coverage deductibles range from $5,550 to $8,350, with an out-of-pocket limit of $10,200.
The foreign earned income exclusion increases to $126,500, and estates of decedents in 2024 have a basic exclusion amount of $13,610,000. The annual gift exclusion rises to $18,000, and the maximum adoption credit is $16,810.
Certain provisions remain unchanged: the personal exemption stays at zero, there's no itemized deduction limitation, and the Lifetime Learning Credit phases out for incomes over $80,000 ($160,000 for joint returns) for all tax years starting from Dec. 31, 2020.