Last week, the Internal Revenue Service unveiled its yearly inflation adjustments. In a press release, the IRS detailed the adjustments for the tax year 2024, which will primarily impact income tax returns submitted in 2025. The notable highlights from the press release, identified by the IRS as of greatest interest to the majority of taxpayers, include:
Married couples filing jointly will see their standard deduction rise to $29,200 for the tax year 2024, reflecting a $1,500 increase from the 2023 tax year.
Single taxpayers and those married individuals filing separately can expect a standard deduction of $14,600 in 2024, marking a $750 increase from the previous year.
Increase in Standard Deductions for Tax Year 2024
In the upcoming tax year of 2024, the highest tax rate will persist at 37% for individual single taxpayers whose incomes surpass the threshold of $609,350, and for married couples filing jointly, the threshold is set at $731,200. Heads of households will benefit from a standard deduction of $21,900 for the tax year 2024, experiencing a notable increase of $1,100 compared to the amount set for the 2023 tax year.
Let’s delve into the other applicable tax rates:
- A rate of 35% will be imposed on incomes exceeding $243,725 for individual single taxpayers, and for married couples filing jointly, the threshold is $487,450.
- Individuals with incomes over $191,950 (or married couples filing jointly with incomes over $383,900) will face a tax rate of 32%.
- Taxpayers with incomes surpassing $100,525 (or $201,050 for married couples filing jointly) will be subject to a tax rate of 24%.
For incomes over $47,150 (or $94,300 for married couples filing jointly), the tax rate is set at 22%.
- Individuals earning over $11,600 (or married couples filing jointly with incomes over $23,200) will fall into the 12% tax bracket.
Notably, the lowest tax rate of 10% is applicable to single individuals with incomes of $11,600 or less, and for married couples filing jointly, the threshold is $23,200. These revised income tax brackets aim to reflect the evolving economic landscape and provide a comprehensive framework for tax obligations in the upcoming fiscal year.
Additional Noteworthy Points
In addition to the revised income tax brackets, the IRS has highlighted several key updates and changes for the tax year 2024 that taxpayers may find pertinent:
The AMT exemption amount for tax year 2024 is set at $85,700, initiating a phase-out at $609,350 for individual single taxpayers (or $133,300 for married couples filing jointly, with the phase-out starting at $1,218,700). In comparison, the 2023 exemption amount was $81,300, with a phase-out starting at $578,150 (or $126,500 for married couples filing jointly, with the phase-out beginning at $1,156,300).
The maximum EITC amount for tax year 2024 is $7,830 for qualifying taxpayers with three or more qualifying children, marking an increase from the $7,430 limit in the tax year 2023. The revenue procedure includes a detailed table outlining the maximum EITC amounts for various categories, income thresholds, and phase-outs.
For tax year 2024, the monthly limitation for the qualified transportation fringe benefit and qualified parking rises to $315, a $15 increase from the 2023 limit.
The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is raised to $3,200 for taxable years beginning in 2024. For cafeteria plans allowing the carryover of unused amounts, the maximum carryover amount is now $640, up by $30 from taxable years beginning in 2023.
In tax year 2024, participants with self-only coverage in a Medical Savings Account must have an annual deductible ranging from $2,800 to $4,150. For self-only coverage, the maximum out-of-pocket expense is $5,550, a $250 increase from 2023. For family coverage, the annual deductible ranges from $5,550 to $8,350, and the out-of-pocket expense limit is $10,200, an increase of $550 from 2023.
The foreign earned income exclusion for tax year 2024 is set at $126,500, up from $120,000 in tax year 2023. Estates of decedents who pass away in 2024 have a basic exclusion amount of $13,610,000, increased from $12,920,000 for estates of decedents who died in 2023.
The annual exclusion for gifts rises to $18,000 for calendar year 2024, an increase from $17,000 in calendar year 2023. The maximum credit allowed for adoptions in tax year 2024 is the amount of qualified adoption expenses up to $16,810, up from $15,950 in 2023.