The Internal Revenue Service (IRS) has recently announced updated income tax brackets and standard deduction amounts for the 2024 tax year, a move that reflects their annual effort to counteract inflationary pressures. According to Alex Durante, an economist at The Tax Foundation, these adjustments are crucial in shielding taxpayers from inflation's erosive effects on their finances.
However, Durante notes that while these changes prevent higher taxes due to inflation, they do not significantly reduce the overall tax burden. The modifications are particularly relevant as they will apply to tax returns filed in early 2025 by most Americans.
Robert McClelland, a senior fellow at the Tax Policy Center, explains in a blog post that these adjustments are not about putting extra money in people's pockets but about maintaining tax fairness relative to inflation. In simple terms, if your real income increases by 7%, these adjustments ensure that you're not pushed into a higher tax bracket solely due to inflation.
Understanding Your Tax Bracket
The United States federal income tax system operates with seven distinct tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Each rate corresponds to a specific range of taxable income or tax bracket.
The new brackets for 2024 are as follows:
- 10% for income up to $11,600 ($23,200 for married couples filing jointly)
- 12% for income over $11,600 ($23,200 for joint filers)
- 22% for income over $47,150 ($94,300 for joint filers)
- 24% for income over $100,525 ($201,050 for joint filers)
- 32% for income over $191,950 ($383,900 for joint filers)
- 35% for income over $243,725 ($487,450 for joint filers)
- 37% for income over $609,350 ($731,200 for joint filers)
For example, if you are single with a gross income of $100,000, but your taxable income is $75,000, different portions of your income will be taxed at varying rates according to the updated brackets.
For taxpayers who like to plan early, understanding these updated brackets and deductions is crucial.
By being aware of these changes, individuals and families can better prepare for their tax obligations and make informed financial decisions throughout the year. While the IRS's adjustments do not lower taxes, they play a vital role in ensuring that taxpayers are not unfairly penalized due to inflation.