2024 Tax Tables: A Guide

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As we enter 2024, the Internal Revenue Service (IRS) has released the new tax tables. These tables are essential for anyone trying to understand how much they owe in taxes, or for those simply trying to plan their finances for the upcoming year.

The updated tables reflect changes in tax policy and adjustments for inflation, ensuring that taxpayers can accurately calculate their financial obligations.

Reviewing these updates carefully is important, as they can significantly impact your take-home pay and overall financial planning. Let’s dive in!

What's New in 2024?

One of the key updates for the 2024 tax season is the revised set of brackets for income taxes. This year, you will find that the brackets have been adjusted slightly to account for inflation. With the economy constantly changing, these updates aim to prevent bracket creep, where people are pushed into higher tax brackets simply due to inflation rather than actual increases in income.

In addition to changes in the brackets, standard deductions have also been increased across the board. This means that most people can reduce their taxable income by a larger amount before income tax rates are applied.

Understanding these changes is crucial for accurate tax planning and maximizing potential returns.

Standard deduction

Married couples filing jointly for tax year 2024 can deduct $29,200, a $1,500 increase from 2023. Single and married taxpayers filing separately get a $14,600 deduction for 2024, a $750 increase from 2023; heads of households can deduct $21,900 for tax year 2024, a $1,100 increase from 2023.

What this means:

For many individuals and families, the higher standard deduction results in fewer taxes owed and helps to offset the impact of lost personal exemptions from the tax code overhaul a few years ago.

Providing a larger predetermined deduction amount simplifies taxpayers' preparation process.

Marginal rates

For 2024, individuals who file taxes as single and have incomes over $609,350 ($731,200 for married filing jointly) will pay a top rate of 37%.

The other rates are as follows:

  1. 35% tax rate for incomes over $243,725 ($487,450 for married couples filing jointly)
  2. 32% tax rate for incomes over $191,950 ($383,900 for married couples filing jointly)
  3. 24% tax rate for incomes over $100,525 ($201,050 for married couples filing jointly)
  4. 22% tax rate for incomes over $47,150 ($94,300 for married couples filing jointly)
  5. 12% tax rate for incomes over $11,600 ($23,200 for married couples filing jointly)

Single filers with incomes of $11,600 or less, or married couples filing jointly with incomes of $23,200 or less, qualify for the lowest income tax rate of 10%.

What this means:

The progressive nature of these tax rates is designed to ensure that taxpayers with higher incomes pay a larger percentage of their income in taxes.

This system tries to maintain fairness, encouraging those with greater financial resources to contribute more to the setup of public services and infrastructure.

However, it also introduces complexity in tax calculations, so understanding how these rates apply to your specific income level is vital for an accurate assessment of your tax liability.

Alternative minimum tax

For 2024, the Alternative Minimum Tax exemption amount is $85,700, phasing out at $609,350 ($1,218,700 for married couples filing jointly). In 2023, the exemption was $81,300, phasing out at $578,150 ($1,156,300 for married couples filing jointly).

What this means:

The Alternative Minimum Tax (AMT) was created to ensure that those with high incomes pay their fair share of taxes despite any deductions or credits they might otherwise take advantage of.

While it adds another layer of consideration for taxpayers, the increased exemption amounts and phased-out income levels help lessen the likelihood of middle-income earners from being subjected to this tax.

It is key to consider the regular tax calculation and the AMT to determine which may apply and ensure full compliance with tax laws.

Earned income tax credit

Taxpayers with three or more qualifying children can claim a maximum earned income tax credit of $7,830 in 2024, an increase of $400 from the 2023 maximum of $7,430. The revenue procedure includes a table for other categories of taxpayers, with their corresponding income thresholds and phase-outs.

What this means:

The earned income tax credit (EITC) is a benefit for working individuals and families, especially those with children.

The increase in the credit amount reflects the government’s effort to support low-to-moderate-income earners and provide some financial relief.

For those who qualify, this credit can result in a smaller tax bill, or even a refund, which can be particularly valuable when the cost of living continues to rise.

Understanding what the eligibility requirements are and how to claim the credit are important steps in the tax filing process.

Forms like Form 1040 and its schedules must be accurately completed to apply for the EITC. In cases where the credit exceeds the amount of taxes owed, it may result in a refund to the taxpayer.

The IRS strongly advises anyone who thinks they might qualify for EITC to seek assistance and not overlook this substantial tax credit.

Transportation fringe benefit

For 2024, the monthly limit for qualified transportation fringe benefits and qualified parking will rise by $15 to $315, up from the 2023 limit.

What this means:

Employees who receive transportation fringe benefits from their employers will see a small increase in the amount that can be excluded from taxable income.

This helps to lower the amount of income that is subject to tax, providing additional savings.

With the cost of transportation often representing a significant portion of monthly expenses for many workers, this adjustment can offer some relief.

Both employers who offer these benefits and employees who utilize them should take note of the increased limit when planning for the year ahead and reporting benefits on their taxes.

Dollar limitation

Employee salary reduction contributions to health flexible spending arrangements will be limited to $3,200 for tax years beginning in 2024. Cafeteria plans will allow up to $640 of unused amounts to be carried over, an increase of $30 from 2023.

What this means:

With inflation and rising healthcare costs, the increase in the contribution limit for health flexible spending arrangements (FSAs) and the allowance for a higher carryover amount provide taxpayers with additional opportunities to save pre-tax dollars for medical expenses.

This benefit enables greater financial flexibility and can help to ease the burden of healthcare expenses.

Employees anticipating significant medical expenses should consider taking full advantage of this increased limit, as FSAs can be a practical tool in managing healthcare costs.

It is also important for taxpayers to be aware of the eligible expenses and the need to carefully plan their contributions since FSAs typically have a "use-it-or-lose-it" rule, despite the carryover provision.

Medical savings account

For 2024, Medical Savings Accounts with self-only coverage must have an annual deductible of at least $2,800, a $150 increase from 2023, and not more than $4,150, a $200 increase from 2023. Maximum out-of-pocket expense for self-only coverage is $5,550, a $250 increase from 2023. For family coverage, deductible is at least $5,550, a $200 increase from 2023, and not more than $8,350, a $450 increase. Total out-of-pocket expense limit for family coverage is $10,200 for 2024, a $550 increase from 2023.

What this means:

The adjustments for medical savings accounts (MSAs) consider the rising cost of healthcare services.

By altering the deductible and out-of-pocket expense limits, the IRS acknowledges the need for individuals to set aside more money in tax-advantaged accounts to cover future medical expenses.

These accounts are particularly beneficial for individuals with high-deductible health plans as they enable the setting aside of pre-tax dollars to pay for qualifying medical expenses, effectively reducing their overall tax burden.

It's essential for holders of MSAs to be aware of these changes to ensure that they continue to meet the requirements for contributions and distributions, and to maximize the potential tax savings these accounts can offer.

Foreign earned income exclusion

The foreign earned income exclusion for 2024 is $126,500, up from $120,000 in 2023.

What this means:

U.S. citizens and resident aliens working abroad can use the foreign earned income exclusion to reduce their taxable income, thereby lowering their U.S. tax liability.

The increase in the exclusion amount allows those qualifying for the exclusion to potentially exclude a larger amount of their foreign income from U.S. taxation, reflecting adjustments for factors like inflation and the changing international economic landscape.

Taxpayers working internationally should ensure compliance with the IRS requirements for claiming this exclusion, which often involves proving foreign residence or physical presence in a foreign country for a specified duration.

Proper planning and record-keeping can help maximize the benefits of this exclusion.

Estates of decedents

The basic exclusion amount for estates of decedents who die in 2024 is $13,610,000, an increase from the $12,920,000 limit for estates of decedents who died in 2023.

What this means:

  • The rise in the basic exclusion amount for estates is significant for estate planning and taxation purposes.
  • Increasing the exclusion amount effectively reduces the number of estates that will be subject to federal estate tax by allowing a greater portion of an individual's estate to be passed on to beneficiaries without incurring federal estate tax.
  • This can substantially impact estate planning strategies, necessitating individuals and their estate planners to revisit existing wills, trusts, and other estate planning documents to ensure they align with the updated taxation thresholds and take full advantage of the available exclusions.

Annual exclusion for gifts

Starting in 2024, the annual exclusion for gifts will be $18,000, up from $17,000 in 2023.

What this means:

  • The annual gift tax exclusion increase allows individuals to give more money or property to another person without the need to file a gift tax return or pay a gift tax.
  • For those looking to reduce their taxable estate or just help out family members or friends, this can be an advantageous tool to pass on wealth or provide financial assistance while reducing potential estate tax implications.
  • Givers should be cognizant of this new limit when making gifts throughout the year and incorporate it into their tax planning and estate strategies to optimize their financial gifting within the confines of tax regulations.

Adoption expense credit

For 2024, the maximum allowable tax credit for adoption expenses has increased to $16,810, up from $15,950 in 2023.

What this means:

The rise in the adoption expense credit is beneficial for adoptive parents by acknowledging the considerable costs associated with adoption. The credit is designed to offset some expenses incurred during the adoption process, making adoption a more viable option for individuals and families wishing to adopt.

Forms like IRS Form 8839, "Qualified Adoption Expenses", must be accurately completed and submitted with one's taxes to claim this credit.

This increase can alleviate some financial challenges and provide necessary support throughout the adoption journey, encouraging more families to consider adoption.

Maintaining thorough records of adoption-related expenses is important, as the IRS might require detailed accounting for eligible costs.

Adoptive parents should consult with a tax professional to understand which expenses qualify and ensure they receive the maximum benefit available under the new provisions.

What Remains Unchanged for 2024?

Despite these adjustments, several key aspects of current tax policy have not changed with the new year. Let’s take a look:

  1. The personal exemption for tax year 2024 is 0, the same as it was in 2023. This is due to the removal of the personal exemption in the Tax Cuts and Jobs Act.
  2. Itemized deductions have been unlimited since 2018 when the Tax Cuts and Jobs Act eliminated all prior limits.
  3. Starting January 1, 2021, taxpayers will use the same modified adjusted gross income to calculate the Lifetime Learning Credit under § 25A(d)(2), without adjustment for inflation. The credit phases out for taxpayers earning over $80,000 ($160,000 jointly).

Tips To File 2023 Federal Income Tax Returns

Taxpayers should start preparing their documents and financial records as the season approaches to ensure a smooth and accurate filing process. Here are some valuable tips to help with filing:

Create or access an IRS Online Account at IRS.gov/account

Have photo identification ready if you are a new user. Your Online Account will provide helpful information to help you file during the 2024 filing season, such as viewing your most recent tax return data, including adjusted gross income, getting account transcripts, authorizing power of attorney or tax information, receiving electronic notices, getting email notifications for new account information or activity, making and viewing payments, viewing, creating or changing payment plans, and seeing the total amount owed each year.

Gather and update tax records for a smoother filing

Organizing your records makes it easier to prepare an accurate return, prevents errors that can delay refunds, and helps you find potential deductions or credits. Document all your income, including unemployment compensation, interest refunds, gig economy, and digital assets. Gather Forms W-2 (Wage and Tax Statement) and Forms 1099-MISC (Miscellaneous Income) prior to filing. Plus, remember to notify the IRS of any address and name changes.

Act fast!

Taxpayers have only a few pay periods to make withholding changes for 2023. The Tax Withholding Estimator, a tool on IRS.gov, can help ensure enough tax is withheld from paychecks. It can also help those with life changes, such as getting married or having a child, or those managing self-employment income to calculate estimated tax payments. To update federal tax withholding, taxpayers must update their withholding with their employer online or by submitting a new Form W-4.

Get your tax refund faster with direct deposit

Provide the routing and account info associated with the account to make the deposit. Contact the bank, financial institution, or app provider if the info is unavailable. Direct deposits are better than paper checks, reducing the risk of non-receipt, forgery, theft, or returned checks due to wrong address. Need a bank account? Find an FDIC-insured bank or credit union with the National Credit Union Locator tool. Veterans can use the Veterans Benefits Banking Program for free accounts.

Visit IRS.gov for helpful online tools available 24/7

Millions of people use these easy-to-use tools to file and pay taxes, track refunds, find account information, and get answers to tax-related questions. Bookmark IRS.gov for fast access to the resources you need.

Tips for Choosing a Tax Professional

Choosing the right tax preparer is crucial if you seek professional help when filing your taxes. Here’s how you can ensure you've picked the right expert for your situation:

Check qualifications

Use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to find a list of preparers in your area who currently hold professional credentials recognized by the IRS or who hold an Annual Filing Season Program Record of Completion.

Ask about service fees

Avoid preparers who base fees on a percentage of the refund or who boast they can obtain larger refunds than other preparers.

Look for a preparer who is available year-round

This is beneficial if questions or issues arise after the tax season ends or if you need assistance with future tax-related issues.

Ask for an e-file

The IRS requires any paid preparer who does more than ten returns for clients to file electronically via the IRS e-file system.

Ensure they ask for records and receipts

A reputable preparer will request your records and receipts and ask multiple questions to determine your total income, tax deductions, and credits.

Avoid signing a blank tax return

It's unethical and illegal for a tax preparer to ask you to sign a blank tax return. Always review the entire return and understand the contents before signing.

Check the preparer's history

Research the tax professional's history with the Better Business Bureau and check for disciplinary actions and licensure status through your state's Board of Accountancy for Certified Public Accountants or Bar Association for attorneys.

Understand refund terms

Ensure any refund due is sent to you or deposited into your bank account, not the tax preparer’s account.

Ask if they offer audit support

Find out if the tax preparer will assist you in case of an IRS audit; some will offer support or represent you in front of the IRS, while others may charge an additional fee for this service.

Review the return before signing

Before you sign your tax return, review it thoroughly to understand everything and ensure that all information is correct, including names, social security numbers, and addresses.

Report any unethical behavior

If you suspect a tax preparer is not complying with tax law or is engaging in illegal practices, report the behavior to the IRS. You can submit a Form 14157, Complaint: Tax Return Preparer.

Consult early with your tax professional

Relationships and communication are key. Engage with your chosen preparer well before the deadline to ensure you have adequate time to provide all necessary documentation.