Stay Informed: 2024 Tax Law Changes Explained

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As we say goodbye to 2023, we welcome 2024 with open arms and open ledgers. It's that time of the year again when we dust off our calculators, grapple with receipts, and gear up to file our taxes.

Taxes might not be the most thrilling topic, but they're a big deal. As we roll into 2024, there's a fresh lineup of tax changes. In 2024, brace yourselves for a boost in federal income tax brackets and the standard deduction. It's a direct response to stubborn inflation, the culprit behind soaring prices throughout the year.

We understand it can be a taxing task, more so with new tax law changes, like:

  1. The Inflation Reduction Act of last year provided tax breaks for green-energy-related purchases, such as electric vehicles and home improvements.
  2. Due to the high inflation rate, income tax brackets and other figures related to inflation rose.

This year's year-end funding legislation contains various retirement provisions, some of which take effect in 2024.

This article will guide you through this maze and help you understand the 2024 tax law changes so that you can navigate your financial year with ease and confidence.

In this article, we will cover:

  1. Federal tax brackets: single, joint, and head of household
  2. Standard deductions
  3. Capital gains tax
  4. Earned income tax credit (EITC)
  5. Gift exclusions
  6. Estate taxes
  7. Spending accounts
  8. Adoption credit

Tax Brackets: 2024

In 2024, your federal income tax rate will be determined by your taxable income and filing status. Tax rates range from 10% to 37%, which are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

What's changing? Expect higher thresholds for your income brackets and a beefed-up standard deduction. Remember, these adjustments kick in for your 2024 taxes, filed in 2025.

Here's how the 2024 tax rates look for the different filing statuses:

Tax rate Single Married, filing jointly Married, filing separately Head of household
10% $0 to $11,600 $0 to $23,200 $0 to $11,600 $0 to $16,550
12% $11,600 to $47,150 $23,200 to $94,300 $11,600 to $47,150 $16,550 to $63,100
22% $47,150 to $100,525 $94,300 to $201,050 $47,150 to $100,525 $ 63,100 to $100,500
24% $100,525 to $191,950 $201,050 to $383,900 $100,525 to $191,950 $100,500 to $191,950
32% $191,950 to $243,725 $383,900 to $487,450 $191,950 to $243,725 $191,950 to $243,700
35% $243,725 to $609,350 $487,450 to $731,200 $243,725 to $609,350 $243,700 to $609,350
37% Over $609,350 Over $731,200 Over $609,350 Over $609,350

In 2024, the IRS has upped the ante on contribution limits for 401(k)s, pushing it by an additional $500 to a total of $23,000. Meanwhile, IRA contributions get a $500 bump, now sitting at $7,000.

Standard Deductions

For the 2024 tax year, single filers and those married filing separately can claim a standard deduction of $14,600. Joint filers are eligible for a standard deduction of $29,200, while heads of household can claim $21,900. It's important to note that the standard deduction for the 2024 tax year is applied to tax returns filed in 2025.

The standard deduction is a part of your income that isn't taxed and can be deducted from your taxable income, thus reducing your tax bill. The standard deductions for each filing status in 2023 are mentioned below:

  1. Single or married filing separately: The standard deduction is $12,950
  2. Head of household: The standard deduction is $19,400
  3. Married filing jointly or qualifying widow(er): The standard deduction is $25,900.

For 2023 taxes, single filers and those married filing separately can take a standard deduction of $900 higher than in 2022, while married couples and heads of household can take a standard deduction of $1,800 and $1,400, respectively.

Those over 65 or blind can take a $1,500 standard deduction (up from $1,400 in 2022), and those unmarried and not a surviving spouse can take a standard deduction of $1,850 (up from $1,750 in 2022).

Capital Gains Tax Brackets

In the 2024 tax year, individuals won't be subject to capital gains tax if their total taxable income remains at or below $47,025. When their income falls between $47,026 and $518,900, the capital gains tax rate will rise to 15 %. For income levels exceeding this threshold, the rate will elevate to 20 %

For 2023, capital gains taxes, or taxes on investment/asset profits, are subject to different brackets and rates than earned income.

Taxes are typically determined by the profit or capital gain earned from selling assets, such as stocks or cryptocurrencies.

Short-term gains are treated as regular income, while long-term gains are taxed at 0%, 15%, or 20%, depending on filing status and taxable income.

For 2023, the IRS raised the income thresholds for long-term gains.

Single taxpayers earning less than $44,625 are exempt from capital gains taxes, while those earning $44,625-$492,300 are subject to a 15% rate.

Any single taxpayer earning above $492,300 is subject to the highest rate of 20%.

The income threshold rose by approximately 7% due to inflation from 2022.

Given below is a quick guide to help you understand the brackets for long-term capital gains tax:

Single

  1. Income below $44,625: 0% tax rate
  2. Income between $44,626 to $492,300: 15% tax rate
  3. Income above $492,301: 20% tax rate

Married filing jointly

  1. Income below $89,250: 0% tax rate
  2. Income between $89,251 to $553,850: 15% tax rate
  3. Income above $553,851: 20% tax rate

Married filing separately

  1. Income below $44,625: 0% tax rate
  2. Income between $44,626 to $276,900: 15% tax rate
  3. Income above $276,901: 20% tax rate

Head of household

  1. Income below $59,750: 0% tax rate
  2. Income between $59,751 to $523,050: 15% tax rate
  3. Income above $523,051: 20% tax rate

Annual Gift Exclusion

In the year 2024, the yearly gift tax threshold stands at $18,000, marking an increase of $1,000 compared to the previous year. This adjustment is part of the annual inflation-driven modifications applied to various tax figures. For married couples, the collective gift tax limit for 2024 amounts to $36,000.

The annual gift tax exclusion, or limit on gifts to any one person for which no gift tax return is required, will increase to $17,000 in 2023, a $1,000 increase from 2022.

This means that you can give any individual up to $17,000 within the year without the need to report it or pay taxes on it.

Remember, this is per person, per year — so if you want to provide financial help to multiple people, or spread larger gifts over several years, you can do so without incurring any tax liability.

Please note that this limit applies only to gifts of money or assets; it does not apply to charitable donations, which fall under different tax rules and limits.

Estate and Gift Tax Lifetime Exemption

The upcoming changes in federal exemption amounts for 2024 are set to have an impact on estate and gift tax planning. According to a recent announcement by the IRS, the exemption for federal estate and gift taxes will rise to $13.61 million per individual for events happening in 2024, marking an increase from the $12.92 million limit in 2023.

In 2023, estates worth up to $12.92 million will be exempt from estate taxes, an increase from $12.06 million in 2022.

What this means is that if your net estate (the total value of everything you own minus debt and other obligations) is at or below these thresholds, it will not be subject to the federal estate tax — your heirs will inherit it tax-free.

However, if your estate exceeds this exemption amount, then the excess amount will be subject to estate taxes, which could significantly reduce the value of the legacy you leave your heirs. The top federal estate tax rate is currently 40%.

As for the gift tax, the lifetime exemption limit is also $12.92 million in 2023, doubled to $25.84 million for married couples.

This means that you can give away up to that amount over your lifetime without having to pay federal gift taxes.

Flexible Spending Accounts

In 2024, the contribution limit for these accounts sees a $150 increment. Employees opting for FSA participation can now contribute a maximum of $3,200 via payroll deductions throughout the 2024 plan year. These contributions remain exempt from federal income tax, Social Security tax, and Medicare tax.

Workers can contribute up to $3,050* to their Flexible Spending Account (FSA) for the 2023 tax year, 7% higher than the current $2,850 limit. This pre-tax money can be used to cover medical expenses, resulting in tax savings. And may be allowed to carry over up to $610 into the next tax year.

*Employees must set their FSA limit in the fall to take advantage of the increased 2023 limit. (Subject to annual adjustments from the IRS)**

What you really need to remember is that any unused funds at the end of the plan year are essentially lost, so carefully plan and estimate your expected out-of-pocket healthcare expenses for the upcoming year.

Also, you must re-enroll in your FSA during open enrollment season, which generally happens in the fall each year. FSA does not automatically carry over year-to-year, unlike HSA, which stays with you regardless of if you change employer or health plan.

An FSA allows you to set aside pre-tax dollars for dependent care costs. This reduces the amount of your income subject to federal taxes. For example, if you're in the 24% tax bracket, you'll save $240 in federal taxes for every $1,000 you spend on dependent care with an FSA.

Adoption Credits and Assistance Programs

Adoption can be expensive, but there are some tax breaks available to help offset those costs. In 2023, the maximum adoption credit will be $15,190, up from $14, 890 in 2022. This credit is nonrefundable, which means it can't exceed your tax liability for the year.

If your employer provides financial assistance for adoption-related costs under a net adoption assistance program, amounts up to $15,190 can be excluded from your income. Just remember, you cannot take credit for amounts that were excluded from your income.

The credit and exclusion are each subject to an income limitation, which is adjusted yearly for inflation.

For a married individual filing a separate return, the credit and exclusion begin to phase out for individuals with modified adjusted gross income over $215,610 and completely phase out for those with incomes over $255,610.

For the adoption of a child with special needs, the maximum amount that can be credited is $15,190 regardless of the actual amount of expenses.

Retirement Savings Contribution Limits

Key updates for 2024: The contribution limit for employees enrolled in 401(k), 403(b), and many 457 plans, along with the federal government's Thrift Savings Plan, has been raised to $23,000, a rise from the previous limit of $22,500.

The maximum contribution for 401(k), 403(b), most 457 plans, and the Thrift Savings Plan has been raised to $22,500 (previously $20,500).

The IRA contribution limit has increased to $6,500 (previously $6,000). Those 50+ can make additional catch-up contributions of $1,000 (unchanged).

For 401(k), 403(b), most 457 plans, and the Thrift Savings Plan, this limit has risen to $7,500 (previously $6,500), meaning participants aged 50+ can contribute up to $30,000 starting in 2023.

The catch-up contribution limit for age 50+ who participate in SIMPLE plans has been raised to $3,500 (previously $3,000).

For 2023, the income brackets to qualify for deductible contributions to a traditional IRA, contributions to a Roth IRA, and the Saver's Credit all expanded.

To deduct traditional IRA contributions, taxpayers must adhere to certain stipulations.

If the taxpayer or their spouse was covered by a work-related retirement plan during the year, their deduction may be reduced or phased out, depending on their filing status and income. (If neither spouse was covered by a workplace retirement plan, the deduction phase-out does not apply.)

  • Single taxpayers with employer-sponsored retirement plans have a phase-out range of $73,000 - $83,000, an increase from the previous range of $68,000–$78,000.
  • For married couples filing jointly, the IRA contribution phase-out range increases to $116,000–$136,000 if the contributing spouse is covered by a workplace retirement plan, up from $109,000–$129,000.
  • An IRA contributor without a workplace retirement plan and who is married to someone covered by one can contribute up to $228,000, a $14,000 increase from the prior range of $204,000-$214,000.
  • For couples filing separately, the phase-out range for a workplace retirement plan remains $0–$10,000; it does not increase each year with cost of living adjustments.

The income phase-out range for singles and heads of household who are making contributions to a Roth IRA has increased to between $138,000 and $153,000, up from $129,000 and $144,000. The range for a married couple filing jointly is now $218,000 to $228,000, up from $204,000 to $214,000. For those married and filing separately, the range remains $0 to $10,000 and is not subject to annual adjustment.

The Saver's Credit (Retirement Savings Contributions Credit) income limits for married couples filing jointly now stand at $73,000 (previously $68,000), $54,750 for heads of household (previously $51,000), and $36,500 for singles and married individuals filing separately (previously $34,000). Meanwhile, the amount individuals can contribute to their SIMPLE retirement accounts has been increased to $15,500 (up from $14,000).