Every year, the IRS revises key tax provisions, such as the standard deduction, to ensure that specific elements of the tax code keep pace with inflation.
These adjustments, commonly referred to as inflation adjustments, play a crucial role in preventing “bracket creep.” Without them, there is a heightened risk of inflation pushing individuals who have received a cost-of-living raise into a higher tax bracket, potentially exposing them to increased tax rates.
Due to significant inflation, there was an above-average adjustment of 7% for most tax provisions in the 2023 tax year. For some taxpayers, this could result in reduced tax liabilities when filing returns in April.
Federal tax brackets and tax rates
In the United States, there are seven federal tax brackets with marginal rates of 10%, 12%, 22%, 24%, 32%, 35%, and 37%, which remain consistent with the rates established in 2023.
However, for the 2024 tax year (pertaining to taxes filed in 2025), the IRS is implementing adjustments to the income thresholds associated with these brackets. Consequently, certain individuals may have the opportunity to remain in a lower tax bracket, and those who have received a cost-of-living raise may avoid having a portion of their income pushed into a higher bracket.
As an illustrative example, married filers can now earn up to $94,300 to stay within the 12% bracket, a notable increase from the $89,450 threshold in 2023. This adjustment implies that, in 2024, some couples may be able to shield an additional almost $5,000 from being subjected to a higher tax rate.
2023 vs. 2024 tax brackets: Married filing jointly
|
2023 |
2024 |
|---|---|
|
10%: $0 to $22,000. |
10%: $0 to $23,200. |
|
12%: $22,001 to $89,450. |
12%: $23,201 to $94,300. |
|
22%: $89,451 to $190,750. |
22%: $94,301 to $201,050. |
|
24%: $190,751 to $364,200. |
24%: $201,051 to $383,900. |
|
32%: $364,201 to $462,500. |
32%: $383,901 to $487,450. |
|
35%: $462,501 to $693,750. |
35%: $487,451 to $731,200. |
|
37%: $693,751 or more. |
37%: $731,200 or more. |
2023 vs. 2024 tax brackets: Single filers
|
2023 |
2024 |
|---|---|
|
10%: $0 to $11,000. |
10%: $0 to $11,600. |
|
12%: $11,001 to $44,725. |
12%: $11,601 to $47,150. |
|
22%: $44,726 to $95,375. |
22%: $47,151 to $100,525. |
|
24%: $95,376 to $182,100. |
24%: $100,526 to $191,950. |
|
32%: $182,101 to $231,250. |
32%: $191,951 to $243,725. |
|
35%: $231,251 to $578,125. |
35%: $243,726 to $609,350. |
|
37%: $578,126 or more. |
37%: $609,351 or more. |
Standard deduction
|
Filing status |
Standard deduction 2023 |
Standard deduction 2024 |
|---|---|---|
|
Single |
$13,850. |
$14,600. |
|
Married, filing jointly |
$27,700. |
$29,200. |
|
Married, filing separately |
$13,850. |
$14,600. |
|
Head of household |
$20,800. |
$21,900. |
More changes
What additional changes can we expect for the tax year 2024? The IRS, in its comprehensive 30-page inflation release, outlines adjustments to various tax provisions beyond the federal tax brackets. Here’s an overview of how some common tax rules will evolve in 2024:
Gift Tax Exclusion: The annual exclusion for gifts, which dictates the maximum amount individuals can give without filing a gift tax return, will rise to $18,000 per person in 2024, marking a $1,000 increase from the previous year.
Estate Tax Exclusion: The estate tax exclusion, determining the threshold for estate taxation upon the death of a wealthy individual, will be set at $13.6 million for estates valued at or below in 2024, up from $12.92 million in 2023.
HSAs and FSAs: Commencing in 2024, contributors to a health flexible spending account (FSA) can contribute up to $3,200, with the option to carry over up to $640 into the next tax year, if permissible by their plan. Health savings account (HSA) annual contribution limits for 2024 will be $4,150 for self-coverage and $8,350 for family coverage.
Earned Income Tax Credit: The earned income tax credit, a refundable credit designed for low- and moderate-income workers, will experience an increase in 2024. While the credit amount depends on income and the number of children, even individuals without children can qualify. In 2023, the credit ranges from $600 to a maximum of $7,430. Come 2024, the maximum credit will rise to $7,830 for qualifying taxpayers with three or more children.
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