IRS Announces Higher Tax Brackets and Standard Deductions for 2024, Potentially Boosting Take-Home Pay

As the new year approaches, the Internal Revenue Service (IRS) has unveiled higher federal income tax brackets and standard deductions for 2024. The adjustments, announced in November, aim to counteract “bracket creep,” ensuring that Americans have the opportunity to increase their take-home pay and shield more of their income from taxation.

Bracket creep occurs when inflation pushes taxpayers into higher income brackets, despite their purchasing power remaining relatively unchanged. In a bid to address this phenomenon, the IRS makes annual adjustments, with more significant changes during periods of high inflation.

This year, the tax brackets are set to rise by approximately 5.4%, offering potential savings for millions of Americans across all income brackets.

Key Changes for 2024:

1. Standard Deduction:

• Married couples filing jointly will see a 5.4% increase, with the standard deduction rising to $29,200, up from $27,700 in 2023.
• For individual taxpayers, the new maximum standard deduction will be $14,600 in 2024, up from $13,850.
• Heads of households will experience a jump to $21,900 in 2024, compared to $20,800.

2. Tax Brackets for Single Individuals:

• Tax brackets are set to increase by 5.4%, with the top tax rate remaining at 37% in 2024.
• Notable thresholds for single individuals include:
  • 10%: Taxable income up to $11,600
  • 22%: Taxable income over $47,150
  • 37%: Taxable income over $609,350

3. Tax Brackets for Joint Filers:

• Joint filers will experience a similar 5.4% increase, with the top tax rate remaining at 37% in 2024.
• Significant thresholds for joint filers include:
  • 10%: Taxable income up to $23,200
  • 22%: Taxable income over $94,300
  • 37%: Taxable income over $731,200

4. Other Tax Provisions:

• The IRS has raised thresholds for various tax provisions, including the earned income tax credit amount. Families with three or more qualifying children are now eligible to receive $7,830, up from $7,430 in 2023.
• Employees can contribute more to health flexible spending accounts, with the maximum contribution rising by about $150 to $3,200.

While inflation has decreased over the past year, it remains higher than the pre-pandemic average and the Federal Reserve’s 2% target. The IRS adjustments will apply to the 2024 tax year, affecting returns filed in 2025. Taxpayers can anticipate potential benefits in the form of increased take-home pay and reduced tax liabilities.

As the changes come into effect on January 1, 2024, individuals and households are encouraged to consult tax professionals and utilize online resources to better understand the implications for their specific financial situations. The IRS remains vigilant in its commitment to fair and equitable tax practices, ensuring that taxpayers can navigate the evolving economic landscape with clarity and confidence.