As taxpayers prepare for the upcoming tax season, the IRS has implemented various inflation adjustments to help ease the financial burden Americans are facing due to ongoing inflation. These changes, which will be effective for tax year 2024, include increases in standard deductions and adjustments to tax brackets.
For single filers and married individuals filing separately, the standard deduction has been raised to $14,600, representing an increase of $750 from the previous year. Married couples filing jointly will see their deduction increase to $29,200, up by $1,500. For heads of households, the standard deduction is now set at $21,900, an increase of $1,100.
The IRS has also updated its tax brackets for 2024, categorizing taxable income into seven tiers. The highest tax rate of 37% applies to singles earning over $609,350 and married couples with incomes exceeding $731,200, while the lowest rate of 10% applies to individuals making $11,600 or less and couples making under $23,200.
Additional changes include an increase in the alternative minimum tax (AMT) exemption to $85,700, which begins phasing out at $609,350 for single filers, and an increase in the maximum Earned Income Tax Credit for families with three or more children to $7,830, reflecting a $400 rise from the previous year.
Health savings account contributions are also set to increase for 2024, with a maximum contribution limit of $3,200 for individuals and out-of-pocket expense caps raised for both individual and family coverage.
Looking ahead to tax year 2025, the IRS has already announced further increases in the standard deduction — $15,000 for single filers and $30,000 for couples filing jointly — along with changes to tax brackets that continue to reflect a modest increase in taxable income thresholds.
Overall, these adjustments by the IRS seek to provide some relief amidst persistent inflation, allowing taxpayers to save more and hopefully ease the financial strain many are currently experiencing. As always, staying informed about these changes will be crucial for effective tax planning and filing.
Summary: The IRS has announced inflation adjustments for tax year 2024, including increased standard deductions and changes to tax brackets, aimed at helping taxpayers navigate financial challenges due to inflation. Additional changes include adjustments to the alternative minimum tax, health savings accounts, and projected increases for tax year 2025, providing taxpayers with opportunities for greater savings.