The IRS has announced new tax brackets. Here’s how to find yours.

The IRS is raising tax brackets by 5.4% in 0224

The IRS is introducing new income limits for its seven tax brackets, adjusting the limits to account for the impact of inflation. This could give some taxpayers a break on their taxes in 2024.

Tax Agency on Thursday said It adjusts tax brackets to 5.4%, relying on a formula based on the Consumer Price Index, which tracks the prices of goods and services typically purchased by consumers. The 2024 limits come after the IRS expanded its tax brackets last year Historically large 7%Reflecting high inflation last year.

The IRS annually adjusts tax withholdings — as well as many rules such as retirement fund contribution limits — to counter the impact of inflation. This can help avoid so-called “bracket creep,” or when workers are pushed into a higher tax bracket due to cost-of-living adjustments or raises even though their standard of living remains the same.

As a result of higher thresholds, workers may retire if more of their taxable income falls into the lower bracket. Taxpayers will file their 2024 taxes in early 2025.

Line brackets

The IRS increased its tax brackets by 5.4% for 2024 for each type of tax filer, such as individuals or married couples.

There are seven federal income tax rates set by the 2017 Tax Cuts and Jobs Act: 10%, 12%, 22%, 24%, 32%, 35% and 37%.

Taxation in the US is progressive, meaning that the more you earn, the higher the tax rates. However, there is a common misconception that a worker will pay the highest tax rate subject to every dollar of their income – that is not the case. Instead, each tax rate will be applied to your income that falls within each bracket.

But in 2024, more of your income will fall under the lower tax bracket. For example, single tax filers will pay 10% of their first $11,000 of taxable income in the 2023 tax year. In 2024, the first $11,600 of taxable income will fall within the 10% tax bracket, meaning an additional $600 of income will be taxed at 10% instead of 12% in the current tax year.

Your so-called marginal rate is the highest rate of tax paid on your income, but your effective tax rate – the combination of the rates you pay in different parts of your income – reflects your actual tax rate.

Fixed deduction

The standard deduction will increase by 5.4% in 2024, according to the IRS. The new standard deduction for married couples filing jointly will rise to $29,200, up $1,500 from the current tax year.

A $14,600 standard deduction for single taxpayers and married individuals filing separately, an increase of $750 from the current tax year.

Heads of household will have a standard deduction of $21,900 with an increase of $1,100.

How to determine your tax bracket

You can check your marginal tax bracket by determining your highest taxable income.

For example, a married couple with $150,000 in gross income must first deduct the 2024 standard deduction from that amount, resulting in a taxable income of $120,800.

That would put their marginal tax rate at 22%.

However, their effective tax rate is very low:

  • Their first $23,200 of income is taxed at 10% or $2,320
  • Their income between $23,200 and $94,300 is taxed at 12% or $8,532.
  • Their income between $94,300 and $120,800 is taxed at 22% or $5,830.

Combined, they’ll pay $16,682 in federal income tax, giving them an effective tax rate of about 14%.

Higher FSA, HSA limits

The IRS is also raising limits on tax-advantaged accounts that help taxpayers pay for health care expenses.

Flexible spending accounts, which set aside pre-tax dollars to cover short-term health care expenses, will have a $3,200 limit in 2024, the IRS said. It was $3,050 in the current tax year.

The IRS previously announced new limits for health savings accounts, or HSAs, that help workers with high-deductible health plans. These include a new 2024 contribution limit of $4,150 for single taxpayers, a 7.8% increase, while the contribution limit for families will increase to $8,300, or a 7.1% increase from the current year.

People over age 55 can pay an extra $1,000 into their HSAs, a limit that hasn’t changed this year.

See also  New Hampshire exit poll: Majority of GOP primary voters not MAGA, but most would be satisfied with Trump nomination

Leave a Reply

Your email address will not be published. Required fields are marked *