Taxpayers in the U.S. will see adjustments to income tax brackets and various other tax provisions in 2024 due to annual inflation adjustments announced by the Internal Revenue Service (IRS). These changes, outlined in Revenue Procedure 2023-34, are designed to prevent “bracket creep,” where inflation pushes taxpayers into higher tax brackets even if their real income stays the same. Understanding these changes is crucial for effective tax planning for the upcoming year. Let’s break down the key differences between the 2024 and 2023 tax brackets and other important adjustments.
2024 vs 2023 Income Tax Brackets and Marginal Tax Rates
The income thresholds for each tax bracket have shifted upwards for the 2024 tax year. While the tax rates themselves remain unchanged, the income levels at which these rates apply have increased. This means you can earn slightly more in 2024 before moving into a higher tax bracket compared to 2023.
Here’s a comparison of the marginal tax rates and income brackets for single filers and married couples filing jointly:
| Tax Rate | 2023 Single Filers | 2024 Single Filers | 2023 Married Filing Jointly | 2024 Married Filing Jointly |
|---|---|---|---|---|
| 10% | Up to $11,000 | Up to $11,600 | Up to $22,000 | Up to $23,200 |
| 12% | $11,001 to $44,725 | $11,601 to $47,150 | $22,001 to $89,450 | $23,201 to $94,300 |
| 22% | $44,726 to $95,375 | $47,151 to $100,525 | $89,451 to $190,750 | $94,301 to $201,050 |
| 24% | $95,376 to $182,100 | $100,526 to $191,950 | $190,751 to $364,200 | $201,051 to $383,900 |
| 32% | $182,101 to $231,250 | $191,951 to $243,725 | $364,201 to $462,500 | $383,901 to $487,450 |
| 35% | $231,251 to $578,125 | $243,726 to $609,350 | $462,501 to $693,750 | $487,451 to $731,200 |
| 37% | Over $578,125 | Over $609,350 | Over $693,750 | Over $731,200 |
As you can see, for single filers, the income threshold for the 12% tax bracket increases from $11,000 in 2023 to $11,600 in 2024. Similarly, for married couples filing jointly, this threshold rises from $22,000 to $23,200. These adjustments apply across all tax brackets, providing a modest level of tax relief by accounting for inflation.
Standard Deduction Amounts Increase for 2024
The standard deduction, which reduces your taxable income and simplifies tax filing for many, is also increasing in 2024. Here’s how the standard deductions compare:
- Married Filing Jointly: $29,200 in 2024, up from $27,700 in 2023 (an increase of $1,500).
- Single Filers: $14,600 in 2024, up from $13,850 in 2023 (an increase of $750).
- Heads of Households: $21,900 in 2024, up from $20,800 in 2023 (an increase of $1,100).
These higher standard deductions mean that taxpayers can shield more of their income from taxation in 2024, further contributing to potential tax savings.
Changes to Other Key Tax Provisions
Beyond tax brackets and standard deductions, several other important tax provisions are adjusted for inflation in 2024. Here are some highlights:
Alternative Minimum Tax (AMT) Exemption
The AMT is a separate tax system designed to prevent high-income earners from avoiding taxes through certain deductions and credits. The exemption amount for AMT is increasing for 2024:
- 2024 Exemption Amount: $85,700 (single) and $133,300 (married filing jointly)
- 2023 Exemption Amount: $81,300 (single) and $126,500 (married filing jointly)
The income levels at which the AMT exemption begins to phase out are also rising:
- 2024 Phase-out Threshold: $609,350 (single) and $1,218,700 (married filing jointly)
- 2023 Phase-out Threshold: $578,150 (single) and $1,156,300 (married filing jointly)
These increases mean fewer taxpayers may be subject to the AMT in 2024.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) helps low-to-moderate-income workers and families. The maximum EITC amount is increasing for 2024:
- 2024 Maximum EITC (Three or More Qualifying Children): $7,830
- 2023 Maximum EITC (Three or More Qualifying Children): $7,430
The specific EITC amounts and income thresholds vary based on filing status and the number of qualifying children. Consult Revenue Procedure 2023-34 for detailed tables.
Contribution Limits for Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs)
Limits for certain tax-advantaged accounts are also adjusted:
- Health Flexible Spending Arrangement (FSA) Employee Salary Reduction: Increased to $3,200 for 2024 (from $3,050 in 2023).
- Health FSA Carryover Limit: Increased to $640 for 2024 (from $610 in 2023).
- Medical Savings Account (MSA) Minimum Annual Deductible (Self-Only Coverage): Increased to $2,800 for 2024 (from $2,650 in 2023).
- Medical Savings Account (MSA) Maximum Annual Deductible (Self-Only Coverage): Increased to $4,150 for 2024 (from $3,950 in 2023).
- Medical Savings Account (MSA) Maximum Out-of-Pocket Expense (Self-Only Coverage): Increased to $5,550 for 2024 (from $5,300 in 2023).
- Medical Savings Account (MSA) Minimum Annual Deductible (Family Coverage): Increased to $5,550 for 2024 (from $5,350 in 2023).
- Medical Savings Account (MSA) Maximum Annual Deductible (Family Coverage): Increased to $8,350 for 2024 (from $7,900 in 2023).
- Medical Savings Account (MSA) Out-of-Pocket Expense Limit (Family Coverage): Increased to $10,200 for 2024 (from $9,650 in 2023).
Foreign Earned Income Exclusion
For those working abroad, the foreign earned income exclusion is also increasing:
- 2024 Foreign Earned Income Exclusion: $126,500
- 2023 Foreign Earned Income Exclusion: $120,000
Estate and Gift Tax Exclusions
For estate planning purposes, the basic exclusion amount for estates of decedents and the annual gift tax exclusion are rising:
- Basic Exclusion Amount for Estates of Decedents (2024): $13,610,000 (for deaths in 2024)
- Basic Exclusion Amount for Estates of Decedents (2023): $12,920,000 (for deaths in 2023)
- Annual Gift Tax Exclusion (2024): $18,000
- Annual Gift Tax Exclusion (2023): $17,000
Adoption Credit
The maximum credit allowed for adoptions is also increasing:
- 2024 Maximum Adoption Credit: $16,810
- 2023 Maximum Adoption Credit: $15,950
Items Unaffected by Indexing
It’s important to note that some tax items are not subject to annual inflation adjustments. These include:
- Personal Exemption: Remains at $0 for 2024 (and has been eliminated since the Tax Cuts and Jobs Act).
- Limitation on Itemized Deductions: No limitation for 2024 (eliminated by the Tax Cuts and Jobs Act).
- Lifetime Learning Credit Phase-out Thresholds: Not adjusted for inflation for tax years after 2020.
Plan Ahead for 2024 Taxes
Understanding the changes between the 2024 and 2023 tax brackets and other inflation adjustments is essential for taxpayers to plan effectively. While these adjustments are generally favorable, it’s always wise to consult with a tax professional for personalized advice based on your specific financial situation. By staying informed about these changes, you can make informed decisions to optimize your tax strategy for the 2024 tax year and beyond.
