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Wider tax brackets in 2024 will lower what some taxpayers owe Uncle Sam

Woman on hill spreading arms_austin-pacheco-zolv5DWZGis-unsplash
Wide open spaces have a lot of appeal to many of us. Also appealing are the wider income tax brackets in 2024 just announced by the IRS. (Photo by Austin Pacheco on Unsplash)

Inflation has dropped from its post-pandemic historic high in 2022, but it's still enough to cause financial pain. That, along with producers hanging on to their higher prices to recoup some of their COVID-19 losses, eats into our buying power, as every consumer is painfully aware.

But there are a few instances when inflation can work to our advantage.

One is when it prompts the Internal Revenue Service to increase the income brackets that determine our annual tax bills.

The agency has completed that annual task, and today announced that we can make more money in 2024 and much of that money will stay in existing tax brackets. That effectively will mean lower tax bills next year for many of us.

What's my tax bracket? The tax bracket inflation adjustments are just one part of a much larger groups of tax amounts that the IRS evaluates each year and adjusts as necessary to account for inflation.

The portion of our money that falls into the current seven tax rates, ranging from 10 percent to 37 percent as established by 2017's Tax Cuts and Jobs Act (TCJA), is one adjustment that affects every taxpayer.

When the money range in each tax rate is increased, that means more of us will be keeping more of our 2024 money rather than sending it to Uncle Sam throughout the tax year and, if required, when we file 2024 tax year returns in 2025.

So just how much money next year will be in the tax-rate income brackets? Here goes.

Same rates, different income amounts: Despite continued talk by the Biden Administration about possible higher tax rates for the wealthy, other legislative priorities have prevailed so far.

The aforementioned seven tax rates — 10, 12, 22, 24, 32, 35, and 37 percent — set by the Republican tax reform bill, aka the TCJA, are still in place, now and into 2024.

I know, this annual overlap of tax years can be confusing. We're still talking about moves to make in this year's final few weeks so that our 2023 tax liability will be as small as possible when we file in 2024.

But it's also good to have the 2024 amounts. Comparing the current and future years' data can help with those tax decisions. For example, some might be able to postpone some of this year's final earnings into 2024 with its wider income tax brackets so they won't end 2023 in a higher tax bracket.

The table below shows just how much of our 2024 earnings will be in each tax bracket.

2024 Individual Tax Rates and Income Brackets
YOU WILL USE THESE TAX RATES AND INCOME BRACKETS 
WHEN COMPLETING YOUR 2024 TAX RETURN TO BE FILED IN 2025.

Tax Rate

Single

Head
of Household

Married
Filing Jointly
or Surviving Spouse

Married

Filing Separately

10%

Up to $11,600

Up to $16,550

Up to $23,200

Up to $11,600

12%

$11,601 to $47,150

$16,551 to $63,100

$23,201 to $94,300

$11,601 to $47,150

22%

$47,151 to $100,525

$63,101 to $100,500

$94,301 to $201,050

$47,151 to $100,525

24%

$100,526 to $191,950

$100,501 to $191,950

$201,051 to $383,900

$100,526 to $191,950

32%

$191,951 to $243,725

$191,951 to $243,700

$383,901 to $487,450

$191,951 to $243,725

35%

$243,226 to $609,350

$243,701 to $609,350

$487,451 to $731,200

$243,726 to $365,600

37%

$609,351 or more

$609,351 or more

$731,201 or more

$365,601 or more

 

And for comparison purposes, here are the current 2023 tax year rates and income tax brackets that will apply to this year's tax return you'll file in 2024.

2023 Individual Tax Rates and Income Brackets
YOU WILL USE THESE TAX RATES AND INCOME BRACKETS 
WHEN COMPLETING YOUR 2023 TAX RETURN TO BE FILED IN 2024.

Tax Rate

Single

Head of Household

Married
Filing Jointly
or Surviving Spouse

Married Filing Separately

10%

Up to $11,000

Up to $15,700

Up to $22,000

Up to $11,000

12%

$11,001 to $44,725

$15,701 to $59,850

$22,001 to $89,450

$11,001 to $44,725

22%

$44,726 to $95,375

$59,851 to $95,350

$89,451 to $190,750

$44,726 to $95,375

24%

$95,376 to $182,000

$95,351 to $182,100

$190,751 to $364,200

$95,376 to $182,100

32%

$182,001 to $231,250

$182,101 to $231,250

$364,201 to $462,500

$182,101 to $231,250

35%

$231,251 to $578,125

$231,251 to $578,100

$462,501 to $693,750

$231,251 to $346,875

37%

$578,126 or more

$578,101 or more

$693,751 or more

$346,876 or more

 

If you just haven't had enough tax numbers, you also can check out the ol' blog's special page on tax rates and income brackets through the years.

Progressive tax rates pay off: I know I wrote this earlier, but it bears repeating. By increasing the income amounts to which each of the current seven tax rates apply, you'll be able to make more money without your tax bill growing so much.

Your final tax bill also is kept under relative control thanks to our progressive tax rate system. Your earnings are taxed at all the rates that apply to your income, not just at the top rate that applies to the last dollar you earn.

Applying the just announced 2024 tax brackets, here's how it works, using a single taxpayer — let's call her Kathy — as an example.

Kathy's 2024 annual income is $100,000. That would put her next year into the 22 percent tax bracket. But her tax bill isn't $22,000, which is 22 percent of $100,000.

Under our progressive tax system, the first chunk of Kathy's earnings next year, up to $11,600 is taxed at 10 percent. The next tax rate, 12 percent, applies to her earnings of $11,601 to $47,150. And her 2024 pay from $47,151 to $100,000 is taxed at 22 percent.

It's only that last chunk of earned dollars that are taxed at 22 percent.

That means her taxes break out as, rounding the cents per IRS instructions:

$11,600

x

10%

=

 $1,160.00

$35,550

x

12%

=

 $4,266.00

$52,850

x

22%

=

$11,627.00

The total for Kathy's 2024 tax bill comes to $17,053. That's an effective tax rate, which is the average rate of tax on all dollars, of 17.05 percent, not her marginal tax rate, the rate that applies to the last dollar that a taxpayer earns, of 22 percent .

And even though the largest amount of Kathy's overall income next year will be taxed at her 22 percent top rate, she still will come out better in 2024 than she will on $100,000 taxed in this year's brackets.

The 2023 income tax earnings brackets mean her tax bill on $100,000 breaks out as:

$11,000

x

10%

=

 $1,100.00

$33,725

x

12%

=

 $4,047.00

$50,650

x

22%

=

$11,143.00

  $4,625

x

24%

=

 $1,110.00

That's a total 2023 tax bill for Kathy of $17,400. And this year, some of her money is taxed at 24 percent. So she's definitely looking forward to the upcoming tax bracket changes.

Unfortunately for Kathy, her $347 in tax savings next year is small consolation for not getting a raise in 2024.

Of course, these calculations for Kathy are a basic, for-illustration-purposes-only example. The ol' blog's tax-savvy readers have already realized it doesn't take into account the deductions (standard or itemized) that Kathy can claim — and again will be discussed in Part 2 of the 2024 tax inflation series — or any other tax breaks that could reduce her taxable income and ultimate tax bill.

But the rough numbers give you an idea of how the wider tax brackets in 2024 could help lessen next year's tax bill.

But wait, there's more: The tax brackets in this post are just a part of the vast array of changes prompted by inflation. You can take a look at the rest of the items in the 30-page IRS Revenue Procedure 2023-34. It goes into more, and denser IRS and tax code section detail, on the more than 60 changes.

And the IRS document still doesn't cover it all.

Last week, the IRS separately announced changes to retirement and pension plans that are affected by cost-of-living adjustments, or COLAs. Since the COLA changes do take inflation into account, they are part of the ol' blog's annual inflation series.

Back in May, the IRS released its 2024 inflation hikes for high deductible health plans and associated health savings accounts. I'll touch on the HDHP/HSA amounts again in Part 5, the medical tax inflation category.

The Social Security Administration (SSA) last month released the 2024 wage base amount. While not technically an IRS administered tax, this income figure affects payroll taxes, specifically the Social Security part of the Federal Insurance Contributions Act (FICA), so it gets a mention in Part 7 of this series.

And later this year, the IRS will let us know the annual adjustments to the optional standard mileage rates that are tax deductible for various kinds of travel.

Parceling out the many changes: I know, my head is spinning a bit and I do this for fun and as a living. It's also why I break out these changes in separate blog posts instead of one big tax numbers data dump.

Impatient readers can thumb through all the numbers now in the previously cited (and linked a couple of paragraphs above) revenue proclamation.

But, as long-time readers have come to know and (I hope!) love, this post is the start of the ol' blog's annual 10-part series on what the new inflation figures mean to major tax provisions.

The next-up Part 2 will feature the always popular examination of the new standard deduction amounts. It's not too much of a spoiler to say that they, like the income brackets in today's 2024 inflation series opener, will be bumped up a bit, too.

You can get a preview of everything that's coming up in the directory below. When those listed posts go live, I'll add the links there. This first post is linked in the table of contents, as are the 2024 tax year adjusted amounts that were announced earlier.

Thanks for reading, and thanks for your patience in waiting for specifics on all the 2024 inflation adjusted amounts.

 

2024 Tax Year Inflation Series Table of Contents

  1. 2024 tax rates and income brackets
  2. Standard deduction, personal exemptions, and itemized deduction considerations
  3. Retirement, pension plan contribution limits, along with charitable donation option
  4. Credits and deductions, including adoption costs and assistance, Lifetime Learning Credit, Earned Income Tax Credit, educators' expenses, interest on education loans, and transportation fringe benefits
  5. Medical-related tax provisions, including contributions to a flexible spending account, health savings account, medical savings account, eligible long-term care premiums and the Affordable Care Act minimal essential coverage penalty
  6. Estate and gift tax limits, kiddie tax, and new capital gains tax income brackets
  7. Alternative Minimum Tax exemption amounts and 2024 Social Security wage base
  8. International worker tax issues (foreign income, housing exclusions)
  9. Penalties, for both individuals and tax pros, for things such as failure to file a timely 1040 or certain information returns
  10. Standard mileage deduction rates (issued separately, and later in the year, by the IRS; announced and posted Dec. 14, 2023)

 

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Comments

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Dan Turner

Kay, enjoy your blog, but strongly disagree that there’s any benefit to inflation. The inflation mitigation adjustments in the tax code only belatedly and imperfectly offset the pernicious effects of inflation which is almost totally due to the crazy spending of our politicians.

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