Inflation has been cooling, but some taxpayers could save more on their taxes last year as the government continues combating rising prices.
The IRS announced annual inflation adjustments for tax year 2024 in a Nov. 9 news release. More than 60 provisions were revised, including standard deductions and all seven tax brackets.
As of October, prices were up 3.7% in the 12 months between September 2022 and September 2023, according to the Bureau of Labor Statistics. That’s still above the Federal Reserve’s 2% goal, but it’s much lower than this time last year when annual inflation clocked in at 8.2%.
The changes will apply to income tax returns filed in 2025, officials said. Here’s how the revisions will impact you.
A Higher Standard Deduction
The IRS again raised its standard deduction. For the 2024 tax year,
- Married couples filing jointly will see a $29,200 standard deduction, an increase of $1,500 from 2023.
- Single taxpayers and married couples filing separately will see a $14,600 standard deduction, up $750 from 2023.
- Heads of households will see a $21,900 standard deduction, which is a $1,100 jump from 2023.
The standard deduction is the amount of money that taxpayers who do not itemize their deductions can subtract from their taxable income when filing taxes.
Modified Tax Brackets
The minimum income for each of the seven federal income tax brackets will also rise for tax year 2024.
Here’s where your income falls.
- The top tax bracket will remain at 37% and will apply to single individuals who make more than $609,350 annually and married couples filing jointly who earn more than $731,200 per year.
- Individuals earning more than $243,725 annually and married couples filing jointly earning more than a combined $487,450 will pay 35% in federal income taxes.
- Individuals with an annual income greater than $191,950 and married couples filing jointly with a combined income greater than $383,900 fall in the 32% bracket.
- Individuals making more than $100,525 per year and married couples making more than a combined $201,050 will be taxed 24%.
- Individuals with an annual income of more than $47,150 and married couples filing jointly making a combined $94,300 per year or more will have a 22% federal income tax.
- Individuals who make over $11,600 and married couples filing jointly who make a combined $23,200 will see a 12% federal income tax.
- The lowest rate will stay at 10% and will apply to individuals with incomes of $11,600 or less and married couples filing jointly who make $23,200 or less.
Other Changes For Tax Year 2024
Several other provisions will be changed for tax year 2024, according to the IRS.
- The maximum Earned Income Tax Credit will increase to $7,830 for tax year 2024, up from 2023’s $7,430 cap. Qualifying taxpayers with three or more qualifying children are eligible for the credit.
- The dollar limitation for employee salary contributions to health flexible spending arrangements will increase to $3,200. The maximum carryover amount for cafeteria plans that allow unused funds to be carried over will increase to $640 in tax year 2024.
Source News & Observer