The Internal Revenue Service last year released the annual inflation adjustments for many tax provisions for tax year 2024. Although these were released last year, before the beginning of 2024, these changes are of current interest to many taxpayers because they affect the 2024 tax return they will file during the upcoming tax season in early 2025.
The items of greatest interest to most taxpayers include the following:
- The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023. For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for those filing with head of household status, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.
- For tax year 2024, the top tax rate remains 37% for individual single taxpayers for income amounts greater than $609,350 ($731,200 for married couples filing jointly).
The other rates are:
- 35% for income over $243,725 ($487,450 for married couples filing jointly)
- 32% for income over $191,950 ($383,900 for married couples filing jointly)
- 24% for income over $100,525 ($201,050 for married couples filing jointly)
- 22% for income over $47,150 ($94,300 for married couples filing jointly)
- 12% for income over $11,600 ($23,200 for married couples filing jointly)
The lowest rate is 10% for single individuals for income of $11,600 or less ($23,200 for married couples filing jointly).
Please remember that marginal tax rates only apply to the amounts of your income above the indicated amount, not to your entire income. The lower rates will continue to apply to the lower amounts, even if your total income reaches a higher amount.
The Alternative Minimum Tax exemption amount for tax year 2024 is $85,700, and begins to phase out at $609,350 ($133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700). For comparison, the 2023 exemption amount was $81,300 and began to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption began to phase out at $1,156,300).
The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase from $7,430 for tax year 2023. Amounts for other taxpayers claiming the credit have also been adjusted.
For tax year 2024, the limitation for employee salary deductions for contributions to health flexible spending arrangements (FSAs) increases to $3,200. For plans that permit the carryover of unused amounts, the maximum carryover amount is $640, an increase of $30 from tax year 2023.
For tax year 2024, the foreign earned income exclusion is $126,500, increased from $120,000 for tax year 2023.
Estates of decedents who die during 2024 have a non-taxable exclusion amount for estate tax purposes of $13,610,000, increased from $12,920,000 for estates of decedents who died in 2023.
The annual exclusion for gifts increases to $18,000 for tax year 2024, increased from $17,000 for tax year 2023. Amounts over this exclusion are generally not taxable, but they require the filing of a gift tax return by the donor and the eventual inclusion of the gift in the value of the donor’s estate, a value referenced in the immediately preceding paragraph.
By law, certain items are currently not adjusted for inflation, including the following:
- The personal exemption for tax year 2024 remains at 0, as it was for 2023. The elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act of 2017; this change was accompanied by a significant increase in the standard deduction.
- For 2024, as for tax years from 2018 to 2023, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act of 2017.
- The modified adjusted gross income amount used by taxpayers to determine the reduction in the Lifetime Learning Credit (generally used for education expenses for graduate school or other post-college education) is not adjusted for inflation for taxable years beginning after Dec. 31, 2020. Thus, the credit begins phasing out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).
With tax season rapidly approaching, please contact our firm with any questions about how these changes will affect your upcoming 2024 tax filing.