The IRS announces incremental adjustments to tax benefits every year due to inflation. Inflation has continued to increase over the last year. You may be wondering what does this mean to you and how does inflation affect your taxes.
Rest assured, TurboTax has you covered. Below, we will cover the important inflation adjustments for 2024 and what that may mean for you come tax time.
What is a Standard Deduction and the Related Inflation Adjustments?
The standard deduction is a specific deduction that the IRS allows and adjusts for inflation every year. The standard deduction is based on filing status. If you are 65+ or blind, you can also get an additional amount as part of your standard deduction. Following the changes from the Tax Cuts and Jobs Act, the IRS reports that close to 90% of taxpayers now take the standard deduction instead of itemizing their deductions. The latest announced inflation adjustments have resulted in even more people claiming the standard deduction instead of itemizing their deductions since their standard deductions are higher.
For single taxpayers (and those married filing separately) the standard deduction rises to $14,600 for 2024 (up $750 from 2023). The 2024 standard deduction for couples married filing jointly is $ $29,200 (up $1,500 from tax year 2023). For those filing head of household, the standard deduction will be $21,900 for tax year 2024 (up $1,100 from tax year 2023).
For taxpayers who are blind or at least age 65, you can claim an additional standard deduction. The additional standard deduction for 2024 is $1,950 (up $100 from 2023) per single person (or head of household) or $1,550 (up $50 from 2023) per qualifying individual that is married filing jointly or separately. If you are both 65 or older and blind, the additional deduction amount is doubled totaling $3,900 (up $200 from 2023) for single persons (or head of household) and $3,100 (up $100 from 2023) per individual that is married filing jointly or separately.
In 2024, if you can be claimed as a dependent on another person’s tax return, your standard deduction is limited to the greater of $1,300 or your earned income plus $450.
What are the Marginal Income Tax Rates?
For tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).
The other marginal rates are:
- 35% for incomes over $243,725 ($487,450 for married couples filing jointly)
- 32% for incomes over $191,950 ($383,900 for married couples filing jointly)
- 24% for incomes over $100,525 ($201,050 for married couples filing jointly)
- 22% for incomes over $47,150 ($94,300 for married couples filing jointly)
- 12% for incomes over $11,600 ($23,200 for married couples filing jointly)
The lowest rate is 10% for single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
What are the Capital Gain Tax Rates?
Generally, capital gains are profits you made from a sale of assets and investments such as stocks, bonds, cryptocurrency, and real estate. Depending on how long you have held the asset (short term versus long term) determines how it is taxed. The net capital gains are taxed at a maximum rate of 20%, and some taxpayers may even benefit from their net capital gains being taxed at 0%, depending on their income.
For tax year 2024, a capital gains rate of 15% applies if your taxable income is more than $47,025 but less than or equal to $518,900 for a single filer (or more than $94,050 up to $583,750 for those married filing joint returns).
The top rate of 20% will not apply until single filers income is more than $518,900 or more than $583,750 for married filing joint filers.
What is the Earned Income Tax Credit?
The Earned Income Tax Credit (EITC) is the country’s largest program for working people with low to moderate income levels with millions of Americans receiving EITC each year. For tax year 2024, the maximum EITC amount is $7,830 for qualifying taxpayers who have three or more qualifying children. This amount is up from $7,430 for tax year 2023.
What are the Health Flexible Spending Account and Medical Savings Account Increases?
Beginning in tax year 2024, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,200, up from $3,050 in 2023. For cafeteria plans that allow for the carryover of unused dollars, the maximum carryover amount will be $640, up from $610 in 2023.
For tax year 2024, Medical Savings Accounts for individuals who have self-only coverage, the plan must have an annual deductible that is not less than $2,800 but not more than $4,150. For self-only coverage, the maximum out-of-pocket expense amount is $5,550. For family coverage, the annual deductible is not less than $5,550, but the deductible cannot be more than $8,350. For family coverage, the out-of-pocket expense limit is $10,200 for tax year 2024.
What are the Payroll Tax Increases?
Employers and employees are required to have a percent of their wages withheld for taxes under the Federal Insurance Contributions Act – or FICA. FICA payroll taxes are composed of Social Security taxes (old-age, survivors and disability insurance taxes) and Medicare taxes (hospital tax insurance). The maximum amount of earnings subject to these payroll taxes will increase in 2024 to $168,600 up from the $160,200 in 2023.
What are the 401k and IRA Contribution Limit Increases?
The contribution limit for employees who participate in retirement accounts such as 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has increased to $23,000 for 2024 (up from $22,500 in 2023).
The limit on annual contributions to an IRA increased to $7,000 for 2024 (up from $6,500 in 2023). The IRA catch up contribution limit for individuals aged 50 and over has not changed and remains at $1,000.
What are Other Tax Year 2024 Changes?
- Fringe Benefits: The monthly limit for tax-free qualified public transportation and parking fringe benefits increases to $315 (up $15 from $300 monthly limitation for 2023).
- Foreign Earned Income Exclusion: For taxpayers earning foreign income, the income exclusion for tax year 2024 is $126,500 up from $120,000 for tax year 2023.
- Qualified Adoption Expenses: The maximum credit allowed for adoptions for tax year 2024 is up to $16,810, up from the maximum of $15,950 for 2023.
- Gift Tax: For those gifting, the annual exclusion for gift tax increases to $18,000 per recipient for calendar year 2024, up from $17,000 for calendar year 2023.
Don’t worry about knowing these tax rules. No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed.