IRS announces 2024 tax brackets
It’s nearing the end of 2023, and the Internal Revenue Service (IRS) just announced the new income tax brackets for 2024, allowing people to plan ahead for their 2025 filings. The announcement comes as the agency updates the seven income tax brackets annually, changing their ranges to account for inflation.
In addition to the income tax brackets, the IRS has also raised the standard deduction and made other modifications based on laws passed by Congress.
The income tax brackets were bumped upward by 5.4%, lower than last year’s 7% increase but still more than typical. The IRS annually changes the brackets using a formula based on the consumer price index (CPI) to address the effects of inflation. The changes also prevent taxpayers from entering a higher bracket and being taxed more without any actual increase in buying power.
The new brackets for individual single taxpayers are:
37% for incomes more than $609,350
35% for incomes more than $243,725
32% for incomes more than $191,950
24% for incomes more than $100,525
22% for incomes more than $47,150
12% for incomes more than $11,600
10% for incomes of $11,600 or less
For married couples filing jointly, the brackets are:
37% for incomes more than $731,200
35% for incomes more than $487,450
32% for incomes more than $383,900
24% for incomes more than $201,050
22% for incomes more than $94,300
12% for incomes more than $23,200
10% for incomes of $23,200 or less
In addition to the income tax brackets, the dividend tax brackets, 401(k) and other retirement plan contributions, the Health Savings Account (HSA) limits, the Flexible Spending Account (FSA) maximums, and other items have also changed.
The IRS also raised the standard deduction. For married couples filing jointly, the standard deduction was increased by 5.4% to $29,200, making it more attractive than itemizing for many people. The amount is $1,500 higher than in 2023. Individual single taxpayers only receive a $14,500 deduction, $750 more than this year.
The agency also raised the retirement plan contribution limits. For 2024, 401(k) participants can contribute no more than $23,000, up by $500 for 2023. Similarly, most 403(b) and 457 plans are capped at $23,000. Additionally, annual contributions to an Individual Retirement Account (IRA) are now $7,000 in 2024, more than the $6,500 this year.
The maximum amount for both Health Savings Account (HSA) and Flexible Spending Account (FSA) programs were incrementally indexed higher as well.
These changes come as the IRS aims to prevent taxpayers from losing buying power by increasing income tax brackets and other categories. It is also important for taxpayers to note that there are changes to the Earned Income Tax Credit, Alternative Minimum Tax, estate tax exemption, Child Tax Credit, and gift tax exclusion. Taxpayers should check the IRS announcement for all the details.