IRS Tax Brackets 2024 Compared to 2023: Why Do They Matter?
IRS tax brackets 2024 compared to 2023 include some changes.
Soooo… what are tax brackets anyway? Tax brackets determine the percentage of income that individuals and businesses owe in taxes, with rates typically varying based on income levels. As the cost of living and inflation fluctuate year to year, the IRS adjusts these brackets to ensure they remain reflective of current economic realities.
Whether you are on a salary or your income comes primarily from cash tips, it is important to know which tax bracket you and your family fall into.
The IRS reported the annual inflation adjustments for more than 60 tax provisions for tax year 2024.
In this blog post, we will break down the IRS tax brackets for the years 2024 and 2023, comparing the key differences and implications for taxpayers.
Please Explain What Tax Brackets Are
Tax brackets are essentially ranges of taxable income with corresponding tax rates. As your income increases, you move into higher tax brackets, which subject a larger portion of your income to higher tax rates.
For instance, if a tax bracket for a certain filing status is 10% for income up to $10,000 and 20% for income above $10,000, an individual earning $15,000 would pay 10% on the first $10,000 and 20% on the remaining $5,000.
Let’s Have a Look: IRS Tax Brackets 2024 Compared to 2023
Now, let’s dive into the comparison between the IRS tax brackets for 2024 and 2023.
Adjustments for Inflation
One of the primary reasons for changes in tax brackets from year to year is inflation. As the cost of living rises, the IRS adjusts tax brackets to prevent taxpayers from being pushed into higher tax brackets solely due to inflation rather than real increases in income.
In 2024, the IRS made adjustments to the tax brackets to account for inflation. This means that income thresholds for each tax bracket were increased to reflect the rising cost of living.
As a result, taxpayers may find themselves in a slightly lower tax bracket in 2024 compared to 2023, all else being equal.
2024 Tax Brackets
As the IRS explains, for tax year 2024, the top tax rate remains 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)
The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
Standard Deduction Changes
Another significant factor impacting taxpayers’ overall tax liability is the standard deduction. This is a predetermined amount that taxpayers can subtract from their taxable income, reducing the amount of income subject to taxation.
Similar to tax brackets, the standard deduction is adjusted annually to account for inflation.
In 2024, the standard deduction for various filing statuses saw an increase compared to 2023. This means that taxpayers can potentially reduce their taxable income by a larger amount in 2024, resulting in lower overall tax liability.
- The Alternative Minimum Tax exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700). For comparison, the 2023 exemption amount was $81,300 and began to phase out at $578,150 ($126,500 for married couples filing jointly for whom the exemption began to phase out at $1,156,300).
- The tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase of from $7,430 for tax year 2023. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
- For tax year 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 limit for 2023.
Impact on Taxpayers
The changes in tax brackets and standard deductions between 2023 and 2024 can have varying effects on different taxpayers depending on their income levels and filing status.
- Lower-Income Individuals: Those with lower incomes may benefit from the adjustments as they could find themselves in a lower tax bracket or qualify for a higher standard deduction, reducing their overall tax burden.
- Middle-Income Earners: Middle-income earners might also see some benefits, albeit potentially less significant than those in lower-income brackets. The adjustments could lead to slightly lower tax liability or at least help offset any increases due to other factors.
- Higher-Income Individuals and Businesses: While the adjustments aim to mitigate the impact of inflation, higher-income individuals and businesses may still face increased tax liabilities, especially if their income growth outpaces the adjustments made to tax brackets and deductions.
What Now?
Understanding IRS tax brackets is crucial for individuals and businesses alike to effectively manage their finances and comply with tax laws.
The adjustments made by the IRS from 2023 to 2024 reflect the ongoing effort to keep the tax system fair and equitable in light of changing economic conditions.
By staying informed about these changes and how they impact personal or business finances, taxpayers can make informed decisions regarding income, expenses, and tax planning strategies.
When you seek help from a tax professional, you empower yourself by knowing your rights as a taxpayer, what tax bracket you fall into, and any other useful tax information.
Take the wheel on your taxes and stay informed!
