Breaking Down the Changes: IRS Unveils New Income Tax Brackets

The IRS this week announced the new income tax rates and standard deduction amounts that will be in place for the 2024 tax year, adjusted for inflation, for those of you who prefer to plan ahead when it comes to your taxes.

In other words, these are the figures that matter for the tax return that the majority of Americans will submit in the first quarter of 2025.

Every year, the IRS modifies tax rates, the standard deduction, and a few other tax benefits to account for inflation. According to Alex Durante, an economist at the Tax Foundation, the modifications are intended to shield taxpayers from the consequences of inflation. However, the adjustments won’t significantly reduce an individual’s tax burden overall.

In other words, “the inflation adjustment isn’t increasing people’s disposable income.” It just prevents people from paying more in taxes in the event that their real earnings, or inflation-adjusted incomes, increase by 7%, according to a blog post by Tax Policy Center senior scholar Robert McClelland.

The federal standard deduction for singles and married couples filing separately will rise to $14,600 from $13,850 in the next year.

The standard deduction for married couples filing jointly will increase from the current $27,700 to $29,200.

Additionally, the standard deduction for those filing as heads of households will increase to $21,900 from the current $20,800.

Most taxpayers deduct the normal amount. Some people will include all of their deductions since, when combined, they exceed the standard deduction.

For instance, you would probably itemize your deductions to reduce your tax burden if, as a single filer, your mortgage interest, charitable donations, and the allowed share of your state and local income taxes in 2024 were more than $14,600.

New Income Tax Brackets

There are now seven tax rates in the US federal income tax code: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Each of the rates is applicable to a tax bracket, which is a range of taxable income.

Each of the seven rates will be applicable to the following new income tax bands for the 2024 tax year:

• 10%: Earnings up to $11,600 ($23,200 for jointly filed married couples)
• 12%: Over $11,600 in income (or $23,200 for joint filers).
• 22%: Over $47,150 in income (or $94,300 for joint filers).
• 24%: Over $100,525 in income ($201,050 for joint filers).
• 32%: Over $191,950 in income ($383,900 for joint filers).
• 35%: Over $243,725 in income ($487,450 for joint filers).
• Over $609,350 in income (37% for joint filers; $731,200).

Recall that your taxable income is your total income less any applicable tax deductions.

For instance, let’s imagine you are a single individual earning $100,000 a year, but your taxable income is just $75,000 as a result. There will be a 10% tax on the first $11,600 of that. The tax rate on your taxable income, which is between $11,600 and $47,150, is 12%. Additionally, you will pay 22% tax on your taxable income between $47,150 and $75,000.

The IRS will enable FSA members to save up to $3,200 in 2024, up from $3,050 this year, if your employer allows you to contribute to a Flexible Spending Account (FSA). The FSA allows you to save tax-deductible income to pay your out-of-pocket medical expenditures in a given tax year.

Additionally, the IRS revealed this week that you will be able to increase your contributions to your tax-advantaged 401(k) and IRA.

Visit IRS tax-inflation adjustments for further information on this and other tax changes for 2024.

IRS Tax Inflation Adjustments

The Hazardous Substance Superfund funding rate for crude oil received by U.S. refineries and petroleum products that entered the country for consumption, use, or storage is reinstated beginning in the calendar year 2023 under the Inflation Reduction Act. The tax rate is the result of adding the financing rates for the Oil Spill Liability Trust Fund and the Hazardous Substance Superfund. The Hazardous Substance Superfund funding rate is inflation-adjusted for calendar years starting in 2024. Crude oil or petroleum products submitted for the 2024 calendar year after

The tax rate on December 31, 2016, will be $0.26 cents per barrel.

Key modifications to Revenue Procedure 2023-34 include:

The following modifications for tax year 2024 are normally applicable to income tax returns submitted in 2025. The following monetary figures are among the tax items for tax year 2024 that most taxpayers are most interested in:

Married couples filing jointly in 2024 will see an increase in the standard deduction to $29,200 from $1,500 in 2023. The standard deduction increases to $14,600 for 2024 for single taxpayers and married persons filing separately, an increase of $750 from 2023; for heads of households, the standard deduction increases to $21,900 for 2024 tax year, an increase of $1,100 from 2023 tax year figure.

Marginal rates: The maximum tax rate for individual single taxpayers with incomes over $609,350 ($731,200 for married couples filing jointly) stays at 37% for the tax year 2024.
The remaining rates are:

• 35% of earnings over $243,725 ($487,450 for joint filing couples)
• 32% of earnings over $191,950 ($383,900 for jointly filed married couples)
• 24% of earnings over $100,525 ($201,050 for jointly filed married couples)
• 22% of earnings over $47,150 ($94,300 for jointly filed married couples)
• 12% of earnings above $11,600 ($23,200 for joint filings by married couples)

For single people making $11,600 or less every year ($23,200 for married couples filing jointly), the lowest rate is 10%.

For the 2024 tax year, the $85,700 Alternative Minimum Tax exemption amount starts to phase out at $609,350 ($133,300 for married couples filing jointly, while the exemption starts to phase out at $1,218,700). To put things in perspective, the exemption amount for 2023 was $81,300, and it started to phase out at $578,150 ($126,500 for married couples filing jointly, for which the exemption started to phase out at $1,156,300).

Read the rest of the announcement here.