Christopher Alarcon, Wealth of Geeks
In November 2023, the Internal Revenue Service (IRS) introduced new federal income tax brackets and increased standard deductions, adjusting by about 5.4% higher for inflation. The IRS also introduced additional inflation adjustments that include higher contribution limits for tax-deferred retirement plans and a mileage rate increase of 1.5 cents per mile.
Every year, the IRS adjusts tax brackets to halt “bracket creep.” This phenomenon occurs when inflation pushes taxpayers into higher income tax brackets despite no increase in income. These latest tax inflation adjustments will apply to tax returns filed in 2025.
Additionally, the IRS has changed 2024’s tax withholding tables, which determine how much cash employers must withhold for federal taxes from employee wages. Here’s a closer look at what these latest 2024 IRS updates mean for your paychecks and retirement plans.
—————
How these changes may impact your paychecks
Your paycheck may increase in 2024. If this happens, these new changes could place you in a different tax bracket, lower or higher than in 2023. Keep in mind that your federal and state paycheck withholdings determine how much you’ll pay in taxes for that year. You’ll get a refund if you’ve overpaid your tax bill. Keep an eye on your paycheck withholdings, even if your net worth hasn’t changed.
—————
How these updates affect your retirement savings
Americans can now contribute up to $23,000 into their 401(k), their 403(b), and most 457 plans, according to a November 2023 IRS news release. This change represents a $500 increase from 2023’s $22,500 contribution limit. Additionally, the annual contribution limit on individual retirement accounts (IRAs) increased from $6,500 to $7,000.
According to the IRS, the IRA catch-up contribution limit for people 50 and older hasn’t changed. The limit remains $1,000 for 2024. However, for 401(k)s and most other plans, the 2024 catch-up contribution limit is $7,500 for those 50 and older.
—————
What are the 2024 tax year standard deductions?
The 2024 tax year standard deduction for single taxpayers is $14,600 — a $750 increase from 2023 when the standard deduction was $13,850.
For married couples filing jointly, the standard deduction will be $29,200. This is an increase of nearly $1,500 from the 2023 tax year when the standard deduction was $27,770.
Heads of households will see a $21,900 standard deduction — a $1,100 increase from the 2023 tax year.
Finally, the IRS has raised the limit for flexible spending accounts from $3,050 to $3,200 — a $150 increase from 2023.
—————
What are the 2024 marginal income tax brackets?
According to the IRS, individuals earning $11,600 or less and married couples earning $23,200 or less and filing jointly are in the 10% marginal tax bracket.
Individual taxpayers who earn $11,601 to $47,150 and married couples who earn between $23,201 to $94,300 and file jointly are in the 12% marginal tax bracket.
Individuals who earn $47,151 to $100,525 and married couples who earn $94,301 to $201,149 and file jointly are in the 22% marginal tax bracket.
Individual taxpayers who earn $191,951 to $243,725 and married couples who earn $383,900 to $487,449 and file jointly are in the 32% marginal tax bracket.
Individual taxpayers who earn $243,726 to $609,349 and married couples who earn $487,450 to $731,199 and file jointly are in the 35% marginal tax bracket.
Individual taxpayers who earn $609,350 or more and married couples who earn $731,200 and file jointly are in the 37% marginal tax bracket.
—————
What other provisions has the IRS included?
The IRS has changed more than 60 tax provisions for the 2024 tax year, including the Alternative Minimum Tax exemption amount and the annual exclusion for gifts.
The Alternative Minimum Tax exemption amount for 2024 is $85,700, and the annual exclusion for gifts has increased from $17,000 to $18,000. Additionally, the foreign-earned income exclusion has risen from $120,000 to $126,500 for the 2024 tax year.
These changes took effect in January 2024, so you may start seeing bigger paychecks next year, especially if your wages are similar to last year’s. Read Revenue Procedure 2023-34 for more detailed information about these annual adjustments.
Whether or not your net worth changes, you’ll benefit from reviewing your state and federal tax withholdings throughout the year, even if you make less than $60,000 annually. Staying informed means you can avoid unnecessary surprises, like large tax bills. You may also want to keep a running total of your monthly and annual income.
Every year, the IRS adjusts tax brackets to halt “bracket creep.” This phenomenon occurs when inflation pushes taxpayers into higher income tax brackets despite no increase in income. These latest tax inflation adjustments will apply to tax returns filed in 2025.
Additionally, the IRS has changed 2024’s tax withholding tables, which determine how much cash employers must withhold for federal taxes from employee wages. Here’s a closer look at what these latest 2024 IRS updates mean for your paychecks and retirement plans.
—————
How these changes may impact your paychecks
Your paycheck may increase in 2024. If this happens, these new changes could place you in a different tax bracket, lower or higher than in 2023. Keep in mind that your federal and state paycheck withholdings determine how much you’ll pay in taxes for that year. You’ll get a refund if you’ve overpaid your tax bill. Keep an eye on your paycheck withholdings, even if your net worth hasn’t changed.
—————
How these updates affect your retirement savings
Americans can now contribute up to $23,000 into their 401(k), their 403(b), and most 457 plans, according to a November 2023 IRS news release. This change represents a $500 increase from 2023’s $22,500 contribution limit. Additionally, the annual contribution limit on individual retirement accounts (IRAs) increased from $6,500 to $7,000.
According to the IRS, the IRA catch-up contribution limit for people 50 and older hasn’t changed. The limit remains $1,000 for 2024. However, for 401(k)s and most other plans, the 2024 catch-up contribution limit is $7,500 for those 50 and older.
—————
What are the 2024 tax year standard deductions?
The 2024 tax year standard deduction for single taxpayers is $14,600 — a $750 increase from 2023 when the standard deduction was $13,850.
For married couples filing jointly, the standard deduction will be $29,200. This is an increase of nearly $1,500 from the 2023 tax year when the standard deduction was $27,770.
Heads of households will see a $21,900 standard deduction — a $1,100 increase from the 2023 tax year.
Finally, the IRS has raised the limit for flexible spending accounts from $3,050 to $3,200 — a $150 increase from 2023.
—————
What are the 2024 marginal income tax brackets?
According to the IRS, individuals earning $11,600 or less and married couples earning $23,200 or less and filing jointly are in the 10% marginal tax bracket.
Individual taxpayers who earn $11,601 to $47,150 and married couples who earn between $23,201 to $94,300 and file jointly are in the 12% marginal tax bracket.
Individuals who earn $47,151 to $100,525 and married couples who earn $94,301 to $201,149 and file jointly are in the 22% marginal tax bracket.
Individual taxpayers who earn $191,951 to $243,725 and married couples who earn $383,900 to $487,449 and file jointly are in the 32% marginal tax bracket.
Individual taxpayers who earn $243,726 to $609,349 and married couples who earn $487,450 to $731,199 and file jointly are in the 35% marginal tax bracket.
Individual taxpayers who earn $609,350 or more and married couples who earn $731,200 and file jointly are in the 37% marginal tax bracket.
—————
What other provisions has the IRS included?
The IRS has changed more than 60 tax provisions for the 2024 tax year, including the Alternative Minimum Tax exemption amount and the annual exclusion for gifts.
The Alternative Minimum Tax exemption amount for 2024 is $85,700, and the annual exclusion for gifts has increased from $17,000 to $18,000. Additionally, the foreign-earned income exclusion has risen from $120,000 to $126,500 for the 2024 tax year.
These changes took effect in January 2024, so you may start seeing bigger paychecks next year, especially if your wages are similar to last year’s. Read Revenue Procedure 2023-34 for more detailed information about these annual adjustments.
Whether or not your net worth changes, you’ll benefit from reviewing your state and federal tax withholdings throughout the year, even if you make less than $60,000 annually. Staying informed means you can avoid unnecessary surprises, like large tax bills. You may also want to keep a running total of your monthly and annual income.
