If you like to plan your taxes in advance, the IRS this week released the new inflation-adjusted income tax brackets and standard deduction amounts that will be in effect for tax year 2024 .
Translation: These are the numbers that will be relevant to the tax return most Americans will file in early 2025.
The IRS makes inflation adjustments to tax brackets, the standard deduction, and certain other tax breaks each year. The changes are intended to protect taxpayers from the effects of inflation, said Alex Durante, an economist at the Tax Foundation. But the net effect of these changes will not significantly change a person’s tax burden.
In other words, “adjusting for inflation doesn’t put extra money in people’s pockets.” It simply prevents them from facing higher taxes if their inflation-adjusted income (also called real income) increases by 7%,” Robert McClelland, a senior fellow at the Tax Policy Center, wrote in a blog post.
Higher standard deduction
For individuals and married people filing separately, the new federal standard deduction will increase next year to $14,600, up from $13,850 this year.
For married couples filing jointly, the standard deduction will increase to $29,200, up from the current $27,700.
And for people who declare that they are head of household, the standard deduction will be $21,900, compared to $20,800 today.
Most tax filers claim the standard deduction. Others will itemize their deductions because, taken together, they add up to more than the standard deduction.
For example, if you are a single filer and your mortgage interest, charitable contributions, and the qualified portion of your state and local income taxes total more than $14,600 in 2024, you will likely itemize your deductions to save more on your taxes.
The U.S. federal income tax code currently provides for seven tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
Each of these rates applies to a range of taxable income, also called a tax bracket.
For the 2024 tax year, each of the seven rates will apply to the following new income tax brackets:
ten%: Income up to $11,600 ($23,200 for married couples filing jointly)
12%: Income over $11,600 ($23,200 for joint filers)
22%: Income over $47,150 ($94,300 for joint filers)
24%: Income over $100,525 ($201,050 for joint filers)
32%: Income over $191,950 ($383,900 for joint filers)
35%: Income greater than $243,725 ($487,450 for joint filers)
37%: Income greater than $609,350 ($731,200 for joint filers).
Remember, taxable income is your gross income minus the various tax reliefs you are entitled to.
So, as an example, let’s say you’re single and earn $100,000 a year but your taxable income is $75,000. The first $11,600 will be taxed at 10%. Your taxable income between $11,600 and $47,150 will be taxed at 12%. And your taxable income between $47,150 and $75,000 will be taxed at 22%.
If your employer offers you the option to contribute to a flexible spending account, which allows you to save tax-deductible income to cover your medical expenses in a given tax year, the IRS will allow participants in the FSA to save up to $3,200. in 2024, compared to $3,050 this year.
And last week, the IRS announced that you’ll also be allowed to save more in your tax-advantaged 401(k) and IRA.
To learn more about these and other tax changes for 2024, visit the IRS’s Tax-Inflation Adjustments page.