IRS Provides Tax Inflation Adjustments for Tax Year 2024

The Internal Revenue Service (IRS) has announced the annual inflation adjustments for tax year 2024, impacting more than sixty tax provisions, including tax rate schedules and other tax changes. These adjustments are significant as they will apply to income tax returns filed in 2025. Here are the key changes for tax year 2024:

Standard Deduction Increases

  • For married couples filing jointly, the standard deduction will be $29,200, up $1,500 from tax year 2023.
  • For single taxpayers and married individuals filing separately, it rises to $14,600, an increase of $750.
  • For heads of households, the standard deduction will be $21,900, an increase of $1,100.

Marginal Tax Rates

  • The top tax rate remains 37% for single taxpayers with incomes greater than $609,350 and for married couples filing jointly with incomes over $731,200.
  • Other rates include 35% for incomes over $243,725 ($487,450 for joint filers), 32% for incomes over $191,950 ($383,900 for joint filers), down to the lowest rate of 10% for incomes up to $11,600 ($23,200 for joint filers).

Alternative Minimum Tax (AMT)

  • The AMT exemption amount is $85,700 for singles and $133,300 for married couples filing jointly.
  • The AMT exemption starts to phase out at $609,350 for single filers and $1,218,700 for married taxpayers filing jointly.

Other Adjustments

  • The Earned Income Tax Credit (EITC) for single and joint filers with no children will be a maximum of $632.
  • The maximum child tax credit remains $2,000 per qualifying child, with the refundable portion increasing to $1,700 for 2024.

Adjustments Based on Inflation Index

  • The IRS now uses the Chained Consumer Price Index (C-CPI) for adjustments, a change implemented with the Tax Cuts and Jobs Act of 2017. This is used to adjust income thresholds, deduction amounts, and credit values.

Capital Gains Tax Brackets

  • Long-term capital gains brackets are different from ordinary income, with a 0% rate for taxable incomes up to $47,025 for singles and $94,050 for joint filers.

Qualified Business Income Deduction

  • The Tax Cuts and Jobs Act includes a 20% deduction for pass-through businesses, with limits phasing in for higher-income taxpayers.

These adjustments are designed to counteract “bracket creep,” where inflation could push taxpayers into higher tax brackets without a real increase in income. The 5.4% increase in income thresholds for each tax bracket for 2024, while lower than the previous year’s 7% increase, is still significant, especially in the context of the current inflation rate of around 3.7%.

For more detailed information call Signature Relocation at (877-373-0691) or e-mail (info@signaturerelo.com), you may also refer to the IRS announcement here.