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IRS Announces New Income Tax Limits

IRS Announces New Income Tax Limits

NEW YORK (CNN) — If you’re one of those who like to plan your taxes ahead of time, the U.S. Internal Revenue Service (IRS) this week released new income tax thresholds adjusted for inflation and standard deduction amounts that will take effect in the 2024 tax year.

Simply put: these are the numbers relevant to the tax returns most Americans will file in early 2025.

The IRS makes changes Annual inflation to tax limits, standard deduction and some other tax deductions. The changes are designed to protect taxpayers from the effects of inflation, said Alex Durante, an economist at The Tax Foundation. But the net effect of the changes will not significantly change a person’s tax burden.

Put another way, “Inflation adjustment doesn’t put more money in people’s pockets. If their inflation-adjusted income (also called real income) increases by 7%, it prevents them from paying more taxes,” wrote Robert McClelland. , researcher at the Tax Policy Center, On a blog.

A high standard deduction

For individuals filing separately and married couples, the new standard federal deduction will increase to $14,600 next year, up from $13,850 this year.

For married couples filing jointly, the standard deduction will increase to $29,200, up from $27,700 currently.

For individuals registering as head of household, the standard deduction will be US$21,900 compared to the current US$20,800.

Most filers claim the standard deduction. Others itemize their deductions because, together, they add up to more than the standard deduction.

For example, if you’re a single filer and your mortgage interest, charitable contributions, and the allowable portion of your state and local income taxes are more than $14,600 in 2024, you can itemize your deductions to save more on your taxes.

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New income tax thresholds

The US federal income tax code currently consists of seven tax rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

Each of those rates applies to a taxable income range, also known as a tax bracket.

For tax year 2024, each of the seven rates will apply to the following new income tax brackets:

  • 10%: Income up to $11,600 ($23,200 for married couples filing jointly)
  • 12%: Income US$11,600 (US$23,200 for joint filers)
  • 22%: Income above US$47,150 (US$94,300 for joint filers)
  • 24%: Income over US$100,525 (US$201,050 for joint filers)
  • 32%: Income over US$191,950 (US$383,900 for joint filers)
  • 35%: Income US$243,725 (US$487,450 for joint filers)
  • 37%: Income US$609,350 (US$731,200 for joint filers)

Taxable income is your total income minus the various tax deductions you are entitled to.

For example, let’s say you’re single, you earn $100,000 a year, but your taxable income is $75,000. The first US$11,600 is taxed at 10%. Your taxable income between US$11,600 and US$47,150 is taxed at 12%. Your taxable income between USD 47,150 and USD 75,000 will be taxed at 22%.

Changes to FSA and 401(k).

The IRS allows FSA participants to save up to $3,200 if your employer offers you the option to contribute to a flexible spending account that allows you to save tax-deductible income to cover your out-of-pocket medical expenses in a given tax year. in 2024, up from US$3,050 this year.

The IRS announced it last week You will be allowed to save More in your 401(k) and tax-advantaged IRA.

For more information on these and other tax changes for 2024, visit IRS tax adjustment.

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