The Internal Revenue Service announced on Thursday that the thresholds for income tax brackets, and the standard amount Americans can deduct, are both moving up.
The moves — two among several adjustments based on rising inflation — 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 top rate of 37%, for instance, will apply to individuals with annual taxable income above $609,350 or to jointly filing married couples who earn more than $731,200. That’s a bump up from tax year 2023 (the taxes you’ll owe in April) for which the thresholds were $578,125 and $693,750, respectively.
The standard deduction — the set amount of money by which you can reduce the income you’re taxed on if you don’t itemize — will get a boost to $14,600 for single filers in 2024, up from $13,850 in 2023. The deduction for married couples filing jointly jumps from $27,700 to $29,200.
Here’s how the new brackets will look for single filers and married couples filing jointly.
Tax season reminders
As you read through any news about changes from the IRS, it always pays to keep a few things in mind.
These are marginal tax rates
The charts above should serve as a reminder that the U.S. uses graduated tax rates. That means the percentage you see associated with a particular bracket doesn’t apply to the entirety of your income. Rather, each portion of your taxable income, calculated by subtracting your standard or itemized deductions from your gross income, is taxed piece-by-piece as you ascend the income ladder.
That means, for 2024, you’ll pay 10% on your first $23,200, then 12% on dollars 23,201 to 94,300, and so on. In other words, someone with $100,000 in taxable income in 2024 would fall into the 22% bracket, but would owe a tax bill far below $22,000.
Get your tax years straight
Tax years can get confusing. The changes the IRS announced on Thursday are for tax year 2024, for which returns will be due in April 2025.
Tax year 2023 will come to a close in at year-end, and you will have until Monday, April 15, 2024 to get your return in.
Pay attention to changes where they apply to you
The tax brackets and standard deduction aren’t the only IRS provisions that are floating up alongside inflation. There were a host of others that may or may not apply to your specific financial situation.
High net worth individuals would be wise to pay attention to increases in the alternative minimum tax (a filing convention for high earners) and thresholds for estate tax exemptions.
Those with low to moderate incomes will see a boost in the Earned Income Tax Credit, which will be worth a maximum $7,830 in 2024, up from $7,430 in 2023.
And if you’re still in the health insurance enrollment process for next year, note that the maximum you can contribute to a health-care flexible spending account climbs to $3,200 in 2024, a $150 increase from this year’s upper limit.
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