As we enter the tax year 2024, it’s crucial for American households to stay informed about the latest adjustments in tax brackets. The Internal Revenue Service (IRS) annually adapts the earnings thresholds to accommodate inflation, impacting the tax landscape for individuals and families. In this blog post, we’ll explore the projections for the 2024 tax year, shedding light on key changes and considerations.
Adjustments and Projections
Unlike the 7.1 percent increase witnessed in the 2023 tax year, projections from Bloomberg Tax & Accounting indicate a more modest adjustment of 5.4 percent for taxable income in 2024. While the official figures from the IRS are pending, these historically accurate projections offer insights into what taxpayers can anticipate.
Tax Bracket Changes
The seven federal tax brackets—10%, 12%, 22%, 24%, 32%, 35%, and 37%—remain unchanged for 2024. Enacted after the 2017 Tax Cuts and Jobs Act, these brackets are set to persist through the 2025 fiscal year. However, without Congressional action, tax rates are expected to increase for all brackets except the lowest.
Income Thresholds and Standard Deduction
The income thresholds for tax brackets are adjusted annually to reflect inflation, preventing “bracket creep” and ensuring taxpayers are not pushed into higher income brackets due to inflation. For example, the 10% bracket, which applied to the first $11,000 of income in 2023, will now be applied to the first $11,600 for individual filers in 2024, according to projections.
Additionally, the standard deduction is set to increase in 2024. Single filers and married couples filing separately will see an increase to $14,600, while the head of households will enjoy a deduction of $21,900. Married taxpayers filing jointly will benefit from a standard deduction of $29,200. Additional standard deductions of $1,950 apply to individuals aged 65 and older or blind, doubling if both conditions apply.
Filing Status Considerations
Choosing the right filing status is crucial for optimizing tax liabilities. The five filing statuses—Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er) with Dependent Child—offer different tax implications. The IRS recommends selecting the filing status that minimizes tax liability. An online tool, “What Is My Filing Status?” is available to help taxpayers make informed decisions.
Progressive Nature of Income Taxes
Income taxes are progressive, meaning different tax rates apply to different income levels. As an example, a single filer with a taxable income of $50,000 would pay 10% on the first $11,600, 12% on the income between $11,600 and $47,150, and 22% on the remaining amount, resulting in a total tax of $6,053. This is $254.50 less than the tax for the same income in 2023.
Staying informed about tax projections and understanding the changes for the 2024 tax year is essential for effective financial planning. As taxpayers navigate the intricacies of the tax system, staying abreast of adjustments to tax brackets, income thresholds, and deductions will empower them to make informed decisions and optimize their tax liabilities.