In a recent announcement, the Internal Revenue Service (IRS) detailed the annual inflation adjustments for the tax year 2024. These adjustments, spanning over 60 tax provisions, include notable increases in the standard deduction for married couples and individuals filing singly.
Standard Deduction Boosts Across Categories for 2024
For tax year 2024, married couples filing jointly will see a standard deduction increase to $29,200, reflecting a $1,500 rise from the previous year. Single taxpayers and those married but filing separately will experience an uptick to $14,600, up by $750. Heads of households can anticipate a standard deduction of $21,900, marking a $1,100 increase from 2023.
Tax Rate Schedules and Brackets Unveiled
The IRS has outlined the income rate brackets for 2024, maintaining the top tax rate at 37% for single taxpayers with incomes exceeding $609,350 and married couples filing jointly with incomes surpassing $731,200. Additional brackets include 35%, 32%, 24%, 22%, 12%, and 10%, each corresponding to specific income thresholds.
AMT Exemption Adjustments and Other Tax Items
The alternative minimum tax (AMT) exemption amount for 2024 is set at $85,700, initiating phase-out at $609,350. Notably, this is an increase from the 2023 exemption of $81,300. The maximum earned income tax credit (EITC) for qualifying taxpayers with three or more children rises to $7,830, up from $7,430 in 2023.
Enhancements in Various Limits and Contributions
Several other adjustments have been introduced, including an increase in the monthly limitation for qualified transportation fringe benefits and qualified parking to $315, a $15 rise from 2023. The dollar limitation for employee salary reductions for health flexible spending arrangements has risen to $3,200.
Healthcare and Coverage Adjustments
For participants with self-only coverage in a medical savings account, the annual deductible must now range between $2,800 and $4,150, with corresponding increases from the previous tax year. For family coverage, both the annual deductible and out-of-pocket expense limits have seen notable increments.
Foreign Earned Income Exclusion and Estate Tax Changes
The foreign earned income exclusion has increased to $126,500 for the tax year 2024, up from $120,000 in 2023. Estates of decedents who pass away in 2024 now have a basic exclusion amount of $13,610,000, up from $12,920,000 in 2023.
Gifts, Adoptions, and New Regulations for 2024
The annual exclusion for gifts in calendar year 2024 has risen to $18,000 from $17,000 in 2023. Additionally, the maximum credit allowed for adoptions for tax year 2024 is now $16,810, an increase from $15,950 in 2023.
Inflation Reduction Act Brings New Tax Rates for Crude Oil
Effective from calendar year 2023, the Inflation Reduction Act reintroduces the Hazardous Substance Superfund financing rate for crude oil and petroleum products. For calendar year 2024, crude oil or petroleum products entered after December 31, 2016, will have a tax rate of 26 cents per barrel.
These adjustments, applicable to tax returns filed in 2025, present a comprehensive overview of the changes that taxpayers can anticipate in the upcoming financial year.
Source (Journal of Accountancy news).
