New Tax Brackets, Higher Standard Deductions - How Does it Affect You?

Breaking news! The IRS has just released the latest tax adjustments for 2024, covering over 60 tax provisions, including tax rates and much more. Let’s break it all down.

Please note - that the tax year 2024 adjustments described below generally apply to income tax returns filed in 2025.

Straight from the IRS, here are the highlights of changes in Revenue Procedure 2023-34:

• The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023. For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.
• Marginal rates: For 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).
• The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
• The Alternative Minimum Tax exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700). For comparison, the 2023 exemption amount was $81,300 and began to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption started to phase out at $1,156,300).
• The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers with three or more qualifying children, an increase of $7,430 for the tax year 2023. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
• For tax year 2024, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $315, an increase of $15 from the limit for 2023.
• For the taxable years beginning in 2024, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,200. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $640, an increase of $30 from taxable years beginning in 2023.
• For tax year 2024, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,800, an increase of $150 from tax year 2023, but not more than $4,150, an increase of $200 from tax year 2023. For self-only coverage, the maximum out-of-pocket expense amount is $5,550, an increase of $250 from 2023. For tax year 2024, for family coverage, the annual deductible is not less than $5,550, an increase of $200 from tax year 2023; however, the deductible cannot be more than $8,350, an increase of $450 versus the limit for tax year 2023. For family coverage, the out-of-pocket expense limit is $10,200 for tax year 2024, an increase of $550 from tax year 2023.
• For tax year 2024, the foreign earned income exclusion is $126,500, increased from $120,000 for tax year 2023.
• Estates of decedents who die during 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 increases to $18,000 for calendar year 2024, increased from $17,000 for calendar year 2023.
• The maximum credit allowed for adoptions for tax year 2024 is the amount of qualified adoption expenses up to $16,810, increased from $15,950 for 2023.

Items unaffected by indexing:

By statute, certain items that were indexed for inflation in the past are currently not adjusted.

• The personal exemption for tax year 2024 remains at 0, as it was for 2023. This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
• For 2024, as in 2023, 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
• The modified adjusted gross income amount used by taxpayers to determine the reduction in the Lifetime Learning Credit provided in § 25A(d)(2) is not adjusted for inflation for taxable years beginning after Dec. 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

Key Takeaways

• IRS said it will boost the income threshold by 5.4% for each bracket to account for inflation. This is down from last year when they expanded brackets by a record 7%. The goal is that Americans who only receive a cost-of-living raise will benefit and be able to keep more of their money.
• The standard deduction is increasing to $29,200 for married couples filing together and $14,600 for single taxpayers.
• There are also changes to the alternative minimum tax, estate tax exemption, earned income tax credit, and flexible spending account limits, among others.
• In addition, the IRS increased numbers for various other provisions, including the alternative minimum tax, a secondary system for high earners, andand the estate tax exemption, which applies to affluent families.
• For low- to moderate-income filers, a higher earned income tax credit allows for a write-off of up to $7,830. Furthermore, employees can allocate $3,200 to health flexible spending accounts for added savings.

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