The Internal Revenue Service (IRS) is on the verge of setting new tax brackets for 2024, an annual adjustment that could result in some tax relief for certain taxpayers, thanks to the agency’s inflation adjustment.
Although the IRS has not yet officially announced the new brackets, it is expected to do so in the upcoming days or weeks, pointed out Steve Grodnitzky of Bloomberg Tax, who also shared his forecasts on how these tables will be structured and how other tax policies will be affected.
Anticipated tax table adjustments could ease tax burden
The annual adjustment in the tax tables is done taking into account the consumer price index, which tracks a set of goods and services typically purchased by consumers.
For instance, last year, the tax brackets were increased by a notable 7% due to the highest inflation in 40 years. However, since inflation has eased this year, the increase is expected to be more moderate, with tables rising about 5.4%.
Key Changes in Tax Brackets
These adjustments help to prevent so-called “bracket creep,” which occurs when workers are pushed into higher tax brackets due to the impact of cost-of-living adjustments to offset inflation, without a change in their standard of living.
Also, it could help taxpayers reduce what they owe to the IRS if more of their income falls into a lower bracket as a result of the higher thresholds.
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In Grodnitzky’s words,
“For the income tax brackets, the dollar amounts have now increased, so for 2023, the lowest bracket for single people is those making up to $22,000, but now it’s up to $23,200, so it basically changes how much you are going to be taxed.”
Impact on Taxpayers
For 2024, the tax brackets are moving upward, meaning it will take more income to reach each higher band of taxation.
For example, a single taxpayer who earns $100,000 in 2024 will have a top marginal tax rate of 24%, whereas in 2023, their top marginal tax rate is 32%.
This modification will also affect married taxpayers, where, for instance, those with up to $23,200 in income will pay 10% in federal income taxes, compared to $22,000 in 2023.
Adjusted Standard Deduction
Another significant change is the adjustment to the standard deduction, which is utilized by 86% of taxpayers. The standard deduction is an option for those who don’t itemize their taxes, and it reduces the amount of income you must pay taxes on.
For 2024, it’s forecasted that the standard deduction for single taxpayers will be $14,600, up from $13,850 this year. Married couples filing jointly will see theirs rise to $29,200, up from $27,700. While heads of households will have a new standard deduction of $21,900, up from $20,800.
These modifications in the tax tables and the standard deduction are crucial adjustments that seek to align the tax system with the current economic conditions, thereby providing a more fair and equitable tax structure for taxpayers.
With information from CBS News