The Internal Revenue Service (IRS) announced the annual inflation adjustments for the year 2024, including the tax rate schedules, tax tables and cost-of-living adjustments. These adjustments affect the income tax brackets and the standard deduction amounts for taxpayers, as well as other tax provisions.
The IRS is required by law to adjust the tax brackets each year to account for inflation, which erodes the value of money over time. The IRS adjusts more than 60 tax provisions for inflation each year, but the income ranges for the seven tax brackets and the standard deduction are among the most important for most taxpayers.
The thresholds for income tax brackets and the standard deduction amounts are both moving up, reflecting the rising inflation this year. This means that taxpayers will have to earn more money to qualify for higher income brackets and their correspondingly higher rates for tax year 2024.
The marginal tax rates are the percentage of tax that you pay within a certain income range. There are seven federal income tax brackets for your 2024 tax return: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The top marginal income tax rate of 37% will apply to single individuals with incomes over $540,800 and married couples filing jointly with incomes over $647,850.
The standard deduction for single filers will increase by $600 to $12,950 and for married couples filing jointly by $1,200 to $25,900. The standard deduction reduces the amount of income that is subject to tax and varies depending on your filing status. For example, if you are single and have a taxable income of $50,000 in 2024, you can subtract $12,950 from your income and pay taxes on the remaining $37,050.
The IRS also announced that the annual gift tax exclusion amount for 2024 remains at $15,000 per individual per year, unchanged from 2023. The basic exclusion amount for an estate of a person who dies in 2024 will be $12.06 million, up from $11.7 million for 2023. The gift and estate taxes are unified and have a top rate of 40%.
The IRS also announced new limits for retirement accounts, such as 401(k)s and IRAs, which will increase by $1,000 to $20,500 and $7,000, respectively, for 2024. These limits determine how much you can contribute to these accounts on a pre-tax or after-tax basis, depending on the type of account. The higher the limit, the more you can save for retirement and reduce your taxable income.
The IRS said that the new tax brackets and other inflation adjustments will be published in Revenue Procedure 2023-45, which will be available on IRS.gov later this month. The IRS also provides online tools and publications to help taxpayers understand and comply with the tax laws.
– The IRS just announced new tax brackets. Here’s how to see yours., CNBC, 11/9/2023
– IRS releases tax brackets, inflation adjustments for 2024, Axios, 11/9/2023
– The IRS just revealed 2024 income tax brackets — what the numbers mean for your tax bill, MSN, 11/9/2023
– What Are the New Tax Brackets for 2024?, Buy Side from WSJ, 11/9/2023