IRS announces inflation adjustments for 2024 tax year
IRS 2024 Tax Year Inflation Adjustments: What You Need to Know
Taxpayers across the United States eagerly await the annual inflation adjustments released by the Internal Revenue Service (IRS). These adjustments help ensure that taxpayers are not inadvertently pushed into higher tax brackets due to inflation. As the year 2024 approaches, it's important to stay informed about the upcoming IRS tax year inflation adjustments. In this post, we will explore the key adjustments for the 2024 tax year and their potential impact on individuals and businesses alike.
Standard Deductions
One of the most noteworthy adjustments is the increase in standard deductions for various filing statuses. The standard deductions are designed to reduce taxable income and provide taxpayers with a simplified method of tax calculation. Let's take a closer look at the changes for the 2024 tax year:
For single taxpayers and married individuals filing separately, the standard deduction will increase to $14,600 in 2024, up $750.
For married couples filing jointly, the standard deduction will rise to $29,200 in 2024, up $1,500.
For heads of households, the standard deduction will increase to $21,900 in 2024, up $1,100.
These adjustments offer a slight increase in deduction amounts, giving taxpayers the opportunity to lower their taxable income and potentially owe less in taxes.
Tax Brackets and Rates
Another significant aspect of the IRS tax year inflation adjustments relates to tax brackets and rates. The adjustments aim to prevent taxpayers from facing higher tax liabilities solely due to inflation. Here are the changes in tax brackets for the 2024 tax year:
The top tax rate remains 37% for individual taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).
35% for incomes over $243,725 ($487,450 for married couples filing jointly).
32% for incomes over $191,950 ($383,900 for married couples filing jointly).
24% for incomes over $100,525 ($201,050 for married couples filing jointly).
22% for incomes over $47,150 ($94,300 for married couples filing jointly).
12% for incomes over $11,600 ($23,200 for married couples filing jointly).
10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
It's important to note that these changes primarily account for inflation and are subject to potential revisions based on future legislative or policy decisions.
Retirement Contributions
Retirement savings are a crucial aspect of financial planning, and the IRS acknowledges this by making adjustments to contribution limits for retirement accounts. In the 2024 tax year, most limits will see an increase. The contribution limits for workplace retirement plans, such as 401(k) accounts, will rise to $23,000, up from $22,500 in 2023. The catch-up contribution limit for individuals aged 50 and over will remain the same at $7,500 in 2024. That means participants who are 50 and older can contribute up to $30,500 in 2024.
These adjustments encourage individuals to save more for their future and enjoy the benefit of reduced taxable income in the present.
Alternative Minimum Tax (AMT)
The Alternative Minimum Tax (AMT) was established to ensure that high-income individuals cannot escape paying their fair share of taxes through various deductions and loopholes. AMT operates on a parallel tax system with its own set of rates and deductions. Here are the key changes to the AMT exemption amounts for the 2024 tax year:
For single taxpayers and married individuals filing separately, the AMT exemption amount for 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly whom exemption begins to phase out at $1,218,700).
These increases in AMT exemptions provide some relief to high-income individuals, preventing them from potentially triggering the AMT merely due to inflation.
Estate and Gift Tax Exemption
For those involved in estate planning, the IRS also adjusts the estate and gift tax exemption limits. These adjustments aim to prevent individuals from facing higher estate and gift tax burdens. Here are the changes for the 2024 tax year:
The estate tax exemption will increase to $13.61 million in 2024.
The annual gift tax exclusion amount will rise to $18,000 in 2024.
These adjustments assure individuals that their estate and gifts will face less taxation, providing a smoother transfer of wealth across generations.
Other Adjustments
Apart from the major adjustments discussed above, there are several other IRS inflation adjustments worth considering:
The foreign earned income exclusion will increase to $126,500 in 2024, benefiting US citizens and residents working abroad.
The adoption credit, which helps offset the costs associated with eligible adoptions, will increase to $16,810 in 2024.
The maximum Earned Income Tax Credit (EIC) amount in 2024 will be $7,830 for qualifying taxpayers with 3 or more qualifying children.
