In the upcoming year, adjustments to federal income tax brackets and standard deductions are set to take effect, offering Americans the possibility of augmenting their take-home pay in 2024 and allowing them to safeguard more of their income from IRS taxation.
The recent announcement by the IRS regarding the heightened limits for federal income tax brackets and standard deductions serves to mitigate “bracket creep,” a situation where individuals are pushed into higher tax brackets due to inflation-driven income increases without experiencing actual gains in purchasing power. These annual adjustments by the IRS are particularly crucial during periods of elevated inflation, as they shield taxpayers from being unduly taxed as a consequence of inflationary pressures. Although inflation has receded compared to its recent highs, it remains above both pre-pandemic averages and the Federal Reserve’s targeted rate of 2%.
For the upcoming tax year, the tax brackets are being raised by approximately 5.4%, potentially resulting in increased savings for millions of Americans across various income levels.
The IRS modifications for the 2024 tax year encompass several key areas. Notably, the standard deduction—commonly utilized by the majority of taxpayers—is slated to rise significantly. Married couples filing jointly will witness an increase to $29,200 from $27,700 in 2023, reflecting a 5.4% elevation. Likewise, for individuals, the new maximum standard deduction for 2024 will be $14,600, up from $13,850, while heads of households will experience an uptick to $21,900 from $20,800.
The adjusted tax brackets are set to benefit both individual and married filers, with an approximate 5.4% increase across various income thresholds. Despite these changes, the top tax rate will remain at 37% for the 2024 tax year.
Furthermore, the IRS has raised thresholds for other tax provisions. For instance, the earned income tax credit amount has been increased, allowing families with three or more qualifying children to be eligible for $7,830, up from $7,430 in the 2023 tax year. Additionally, employees can contribute more to their health flexible spending accounts, with the maximum contribution rising by around $150 to $3,200. These revisions seek to accommodate the changing economic landscape and provide relief to taxpayers amid ongoing economic challenges.