Here's a breakdown of modifications to limits and thresholds for various well-known taxation regulations for the 2024 tax year.
The IRS has announced that for the 2024 tax year, they will be making updates to several common tax provisions in order to keep up with inflation.
These adjustments, also known as inflation adjustments, are crucial in preventing bracket creep and ensuring that taxpayers don't end up in a higher tax bracket due to inflation.
In 2023, high inflation resulted in a 7% adjustment for most tax provisions, potentially leading to smaller tax bills for some. While the adjustment for 2024 is lower at 5.4%, it is still relatively high compared to previous years, meaning that some individuals may still see a tax benefit.
Let's take a closer look at how these adjustments will affect tax thresholds and credits for 2024, and how they compare to the previous year.
Federal Tax Brackets and Tax Rates
There are seven federal tax brackets in the United States. The marginal rates from 2023 remain at 10%, 12%, 22%, 24%, 32%, 35%, and 37% in 2024.
However, the IRS is changing many of the income criteria that determine these rates for the 2024 tax year (taxes filed in 2025). As a result, some taxpayers could be able to maintain their lower tax rate, while those who got a cost-of-living increase might be able to avoid having some of their income moved up into a higher tax bracket.
For instance, married filers can now earn up to $94,300 in order to stay in the 12% tax bracket, as opposed to $89,450 in 2023. Due to this increase, certain couples may be able to defer paying an extra nearly $5,000 in taxes in 2024.
2023 vs. 2024 tax brackets: Married filing jointly
2023 vs. 2024 tax brackets: Single filers
Standard Deduction
Most filers can reduce their taxable income by the IRS by itemizing their returns or by taking the standard deduction. Most people prefer the standard deduction, which is a fixed amount based on filing status and involves less work to claim because it is typically more advantageous for those who may not have deductible costs.
The standard deduction will rise by $750 for solo taxpayers and married couples filing separately, $1,500 for married couples filing jointly, and $1,100 for heads of household for the 2024 tax year.
What else will change for tax year 2024?
The inflation report from the IRS also contains several amendments to tax laws other than federal tax brackets.
Here are some additional common tax rules that will change in 2024:
Exclusion from gift taxes
The annual exclusion for gifts, which caps the amount of contributions that taxpayers can make to an individual without having to file a gift tax return, will rise by $1,000 from 2023 to $18,000 per person in 2024.
Exclusion from estate taxes
The estate tax exclusion sets a limit on how much of a wealthy person's estate is subject to taxes after their death. Estates worth $13.6 million or less in 2024 will be exempt from estate tax, an increase from $12.92 million in 2023.
HSAs and FSAs
Beginning in 2024, taxpayers may fund a health flexible spending account (FSA) with up to $3,200. If allowed by their plan, they can also roll over up to $640 into the following tax year. The 2024 cap on yearly contributions to health savings accounts will increase to $4,150 for single coverage and $8,350 for family coverage.
The Earned Income Tax Credit
In 2024, there will be an increase to the earned income tax credit, which is a refundable tax credit for workers with low to moderate incomes. The total credit amount is determined by the number of children and income, albeit single persons are still eligible. The earned income credit for 2023 has a maximum of $7,430 and a range of $600. In 2024, qualified taxpayers with three or more children will receive a credit worth up to $7,830.
Beneficial Ownership Information (BOI) Reporting
Beginning on January 1, 2024, many companies in the United States will have to report information about their beneficial owners, i.e., the individuals who ultimately own or control the company. They will have to report the information to the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S. Department of the Treasury.
Learn more about BOI Reporting at FinCEN's Official Website.
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