As another year begins, it's essential for taxpayers to stay informed about the latest changes in the income tax system. The 2024 income tax brackets play a pivotal role in determining how much individuals and businesses will owe to the government. These brackets dictate the tax rates applicable to different income levels and can significantly impact your financial planning. In this article, we will delve into the 2024 income tax brackets, providing an overview of what's changed and how it affects you.

 

The Basics of Income Tax Brackets

 

The income tax system in the United States operates on a progressive scale. Understanding these brackets and the rates associated with them is crucial for financial planning and ensuring you comply with tax laws.

 

A progressive scale means that the more you earn, the higher the tax rate you pay on the additional income. Income is divided into various tax brackets, each with its corresponding tax rate. It's important to understand that the rate for your tax bracket is not your overall tax rate. Each bracket taxes a portion of your income.

 

Dividing your total tax bill, total taxes withheld + additional taxes owed - your refund, by your taxable income will give you your effective tax rate. See the example below.

 

If you are filing single and had $60,000 of taxable income, you’d pay 10% on that first $11,000 and 12% on the chunk of income between $11,001 and $44,725. And then you’d pay 22% on the rest because some of your $60,000 of taxable income falls into the 22% tax bracket. The total bill would be $8,253 — about 13.8% of your taxable income, even though you're in the 22% bracket. That 13.8% is your effective tax rate.

 

2024 Income Tax Brackets

 

There are seven (7) tax rates in 2024. They are: 10%, 12%, 22%, 24%, 32%, 35% and 37% (there is also a zero rate).

 

Here's how those break out by filing status:

 

Single Taxpayers 2024 official tax brackets

 

MFJ Taxpayers 2024 official tax brackets

 

MFS 2024 official tax brackets 

 

HOH 2024 Official Tax Brackets

 

Trusts and Estates 2024 Official Tax Brackets

 

Top Marginal Tax Rates

 

Your marginal tax rate determines what you pay when you receive the next dollar of income—it represents the highest tax rate you pay for the year. For the tax year 2024, the top tax rate is 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).

 

The other 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)

 

Capital Gains Rates

 

Capital Gains rates will not change for 2024, but the brackets for the rates will change. Most taxpayers pay a maximum 15% rate, but a 20% tax rate applies if your taxable income exceeds the thresholds set for the 37% ordinary tax rate. Exceptions also apply for art, collectible, and section 1250 gain (related to depreciation). The maximum zero rate amounts and maximum 15% rate amounts break down as follows:

 

2024 Maximum Capital Gains Rates

 

Standard Deduction Amounts

 

The standard deduction amounts will increase to $14,600 for individuals and married couples filing separately, representing an increase of $750 from 2023. Married couples filing jointly will see a deduction of $29,200, a boost of $1,500 from 2023, while heads of household will see a jump to $21,900 for heads of household, an increase of $1,100 from 2023.

 

2024 Standard Deduction Amounts

 

For 2024, the additional standard deduction amount for the aged or the blind is $1,550. For 2024, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,300 or the sum of $450 and the individual’s earned income (not to exceed the regular standard deduction amount).

 

Itemized Deductions

 

Itemized deductions found on Schedule A have not changed. Here’s a refresher on some of the most common:

 

  • Medical and Dental Expenses. The “floor” for medical and dental expenses is 7.5% in 2024, which means you can only deduct those expenses which exceed 7.5% of your AGI.

  • State and Local Taxes. Deductions for state and local sales, income, and property taxes remain in place and are limited to a combined total of $10,000, or $5,000 for married taxpayers filing separately.

  • Home Mortgage Interest. You may only deduct interest on acquisition indebtedness—your mortgage used to buy, build or improve your home—up to $750,000, or $375,000 for married taxpayers filing separately. For more on mortgage interest under the TCJA, click here.

  • Charitable Donations. As a result of tax reform, the percentage limit for charitable cash donations to public charities increased from 50% to 60% in 2018 and will remain at 60% for 2024.

  • Casualty and Theft Losses. The deduction for personal casualty and theft losses has been repealed except for losses attributable to a federal disaster area.

  • Job Expenses and Miscellaneous Deductions subject to 2% floor. Miscellaneous deductions, including unreimbursed employee expenses and tax preparation expenses, which exceed 2% of your AGI have been eliminated.

 

Child-Related Adjustments

 

The kiddie tax applies to unearned income for children under the age of 19 and college students under the age of 24. Unearned income is income from sources other than wages and salary, like dividends and interest.

 

Your child must pay taxes on their unearned income in 2024, but if that amount is more than $1,300 but less than $13,000, you may be able to elect to include that income on your return rather than file a separate return for your child.

 

Congress has yet to make a decision about changes to the Child Tax Credit, but so far, there’s no update. If nothing changes, the maximum amount of the child tax credit that may be refundable will be $1,700 in 2024.

 

For 2024, the maximum Earned Income Tax Credit (EITC) amount available is $7,830 for married taxpayers filing jointly who have three or more qualifying children—it was $7,430 in 2023. Phaseouts apply.

 

For 2024, the adoption credit for adopting a child with special needs is $16,810, and the maximum credit allowed for other adoptions is the amount of qualified adoption expenses up to $16,810—up from $15,950 in 2023. The available adoption credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) in excess of $252,150; it’s completely phased out at $292,150 or more.

 

Education Related & Student Loans

 

Many student loans will be entering repayment this month. For 2024, the $2,500 maximum deduction for interest paid on qualified education loans will begin to phase out for taxpayers with modified adjusted gross income above $80,000 ($165,000 for joint returns) and will completely phase out for taxpayers with modified adjusted gross income of $95,000 or more ($195,000 or more for joint returns).

 

For the 2024 tax year, the adjusted gross income (AGI) amount for joint filers to determine the reduction in the Lifetime Learning Credit is $160,000; the AGI amount for single filers is $80,000. That amount is not adjusted for inflation for taxable years beginning after Dec. 31, 2020.

 

In 2024, the amount of the eligible educator deduction allowed in connection with books, supplies (other than nonathletic supplies for courses of instruction in health or physical education), computer equipment (including related software and services) and other equipment, and supplementary materials used by the eligible educator in the classroom is $300.

 

Fringe Benefits—Transportation

 

In 2024, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $315, an increase of $15 from the 2023 amount.

 

Health Related Items

 

Health Savings Accounts (HSA). In 2024, the annual limitation on deductions for an individual with self-only coverage under a high deductible health plan (HDHP) will be $4,150 ($8,300 for a family). For 2024, an HDHP will be defined as a health plan with an annual deductible that is not less than $1,600 for self-only coverage ($3,200 for a family). The annual out-of-pocket expenses, including deductibles, co- payments, and other amounts—but not premiums—cannot exceed $8,050 for self-only coverage ($16,100 for a family).

 

Medical Savings Accounts (MSA). For 2024, a high-deductible health plan (HDHP) is one that, for participants who have self-only coverage in an MSA, has an annual deductible that is not less than $2,800 (an increase of $150 from 2023) but not more than $4,150 (an increase of $200 from 2023). For participants with family coverage, an annual deductible that is not less than $5,550 but not more than $8,350 in 2024. For self-only coverage, the maximum out-of-pocket expense amount is $5,550 in 2024, an increase of $250 from 2023. For family coverage in 2024, the annual deductible is not less than $5,550, an increase of $200 from tax year 2023.

 

The oft maligned shared individual responsibility payment has been eliminated for the tax year 2024.

 

IRAs & Other Retirement Accounts

 

Looking for retirement numbers for IRAs (including Roth IRAs) and qualified plans? Those adjustments were released earlier this year. You’ll find them here.

 

Section 199A (Qualified Business Income) Deduction

 

As part of the 2017 tax reform law, sole proprietors and owners of pass-through businesses like LLCs, S corporations, and partnerships may be eligible for a deduction of up to 20% to lower the tax rate for qualified business income. The deduction is subject to threshold and phased-in amounts. For 2024, the threshold amounts begin at $383,900 for married taxpayers filing jointly.

 

2024 Section 199A Amounts

 

Alternative Minimum Tax (AMT)

 

The AMT exemption rate is also subject to inflation. The AMT exemption amount for tax year 2024 for single filers is $85,700 and begins to phase out at $609,350 (in 2023, the exemption amount for single filers was $81,300 and began to phase out at $578,150). In 2024, the AMT exemption amount for married couples filing jointly is $133,300 and begins to phase out at $1,218,700 (in 2023, the exemption amount for married couples filing jointly was $126,500 and began to phase out at $1,156,300.

 

2024 AMT Exemption Amounts

 

Foreign-Earned Income Exclusion

 

In 2024, the foreign-earned income exclusion amount is $126,500, up from $120,000 for tax year 2023.

 

Federal Estate & Gift Tax

 

The federal estate tax exclusion for decedents dying will increase to $13,610,000 million per person (up from $12,920,000 in 2023) or $27,220,00 million per married couple.

 

The federal gift tax exclusion will increase to $18,000 in 2024, up from $17,000 in 2023. That means you can gift $18,000 per person to as many people as you want with no federal gift tax consequences in 2024; if you split gifts with your spouse, that total is $36,000. If your spouse is not a U.S. citizen, tax-free gifts are limited to present interest gifts whose total value is below the annual exclusion amount, which is $185,000 in 2024 (it was $175,000 in 2023).

 

Tax Planning Tips

 

Understanding the income tax brackets is crucial for effective tax planning. Here are some tips to make the most of the 2024 tax brackets:

 

  • Take Advantage of Deductions. Consider itemizing deductions if they exceed the standard deduction, as this can reduce your taxable income.
  • Utilize Tax Credits. Be aware of tax credits for which you qualify, such as the Child Tax Credit, to reduce your tax liability.
  • Invest Wisely. If you have investments, be mindful of capital gains tax rates and plan your investment strategy accordingly.

  • Seek Professional Advice. Tax laws can be complex, so it's often beneficial to consult a tax professional or use tax preparation software to ensure accurate and efficient filing.

 

Conclusion

 

Understanding the 2024 income tax brackets is essential for managing your finances and ensuring compliance with tax laws. By staying informed about the latest changes and taking advantage of deductions and credits, you can minimize your tax liability and make the most of your financial resources. Remember that tax planning is a year-round endeavor, and being proactive can lead to a more financially secure future. Schedule a consulation with us today.