November 13, 2023 IRS announces new income tax brackets The Internal Revenue Service recently announced the annual inflation adjustments for more than 60 tax provisions for tax year 2024, including the tax rate schedules and new income tax brackets. For taxpayers, this announcement holds significance as it directly impacts their financial landscape. This article outlines the details of these changes and explores what they mean for you. What does this mean for you? The IRS makes inflation adjustments annually to protect taxpayers from the effects of inflation. These adjustments ensure that various tax provisions, including deductions and income tax brackets, keep pace with the changing economic landscape. The adjustments announced for the tax year 2024 will be applicable to income tax returns filed in 2025. Higher Standard Deductions: Putting More Money in Your Pocket One of the notable changes is the increase in standard deductions. The standard deduction is an amount that reduces your taxable income, and a higher standard deduction means a larger portion of your income is shielded from taxation. This, in turn, can lead to a lower overall tax liability. 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. Heads of households will benefit from a standard deduction of $21,900, representing a substantial increase of $1,100 compared to the preceding tax year. New Income Tax Brackets: Understanding Your Tax Liability The US federal income tax code currently has seven tax rates – 10%, 12%, 22%, 24%, 32%, 35% and 37%. For tax year 2024, each of the rates will apply to the following new income tax brackets: ● 10%: Income up to $11,600 ($23,200 for joint filers) ● 12%: Income over $11,600 ($23,200 for joint filers) ● 22%: Income over $47,150 ($94,300 for joint filers) ● 24%: Income over $100,525 ($201,050 for joint filers) ● 32%: Income over $191,950 ($383,900 for joint filers) ● 35%: Income over $243,725 ($487,450 for joint filers) ● 37%: Income over $609,350 ($731,200 for joint filers) Understanding these brackets is crucial for determining your tax liability and planning accordingly. FSA Changes: Maximizing Your Tax Savings For those enrolled in a Flexible Spending Account (FSA) through their employer, changes are also on the horizon. The IRS has increased the FSA contribution limit to $3,200 for 2024, up from $3,050 in the current year. This adjustment allows FSA participants to save more tax-deductible income to cover their out-of-pocket medical expenses. Staying informed about these adjustments empowers you to make informed financial decisions and optimize your tax strategy. The increased standard deductions and revised income tax brackets are designed to ease the tax burden for many due to the rise in inflation, while FSA changes offer an opportunity to maximize tax savings. Consulting with professionals such as KatzAbosch on income tax planning and reduction can further enhance your understanding and ensure you navigate these changes effectively. How KatzAbosch Can Help If you have questions about how these changes affect you, please reach out to your trusted KatzAbosch Advisor. You can also read more here on the IRS website.
