TAX SEASON 2024
How inflation adjustments made by the IRS could help to lower your tax bill this year
How inflation adjustments made to the standard deduction and tax brackets could lower your tax bill this year.
So far, the Internal Revenue Service (IRS) has received 54 million tax returns. With just a month before the federal tax deadline, the tax authority has processed 36 million refunds, with an average value of $3,182.
With inflation continuing to push up prices, the IRS has adjusted the standard deduction and tax brackets to reduce the adverse effects on purchasing power that inflation brings. In November 2023, the IRS announced these adjustments, saying that “more than 60 tax provisions for tax year 2024, including the tax rate schedules,” would just adjusted for inflation.
Additionally, there are dozens of credits and other benefits that can be claimed to reduce one’s tax bill, but not everyone is eligible for each. For instance, the Earned Income Tax Credit (EITC) is worth up to $7,430, but it can only be claimed by those with an annual gross income of $63,398 or less.
Adjustments to tax brackets and the standard deduction
The standard deduction is a predetermined amount of income you are allowed to deduct from your taxable income without having to answer any questions about the deduction. According to official information from the IRS, the standard deduction amounts for tax year 2023 are the following:
- $14,600 (+$750 from 2023) for single taxpayers or couples filing separately, under 65 years of age
- $21,900 (+$1,100 from 2023) for heads of household
- $29,200 (+$1,500 from 2023) for couples filing jointly, under 65 years of age
By increasing the standard deduction, less of one’s income is taxable by the IRS, and therefore, the filer’s tax bill should be lower than it otherwise would have been without the adjustments. However, taxpayers can itemize their deductions if doing so lowers their taxable income and places them in a lower tax rate.
Regarding tax brackets, the seven tax rates set by the 2017 Tax Cuts and Jobs Act remained unchanged: 10%, 12%, 22%, 24%, 32%, 35% and 37%.
- 10%: incomes of $11,600 or less (+600 from 2023) | $23,200 (+$1,200 from 2023) for married couples filing jointly
- 12% for incomes over $11,600 (+600 from 2023) | $23,200 (+$1,200 from 2023) for married couples filing jointly
- 22% for incomes over $47,150 (+2,225 from 2023) | $94,300 (+4,850) for married couples filing jointly
- 24% for incomes over $100,525 (+5,150) | $201,050 (+10,300) for married couples filing jointly
- 32% for incomes over $191,950 (+9,850) | $383,900 (+19,700) for married couples filing jointly
- 35% for incomes over $243,725 (+12,475) | $487,450 (+24,950) for married couples filing jointly
- 37% for individual single taxpayers with incomes greater than $609,350 (+31,225) | $731,200 (+62,450) for married couples filing jointly
These will remain in place through the 2025 fiscal year, after which time, with no Congressional action, the tax rate will increase for all except the lowest. However, the income brackets associated with these tax rates can and are adjusted by the IRS using the Bureau of Labor Statistics Chained Consumer Price Index.
The annual adjustment is meant to prevent “bracket creep,” which happens when individuals are pushed into a higher income bracket due to inflation or when the value of other deductions or credits decreases. For instance, instead of 10% being applied to the first $11,000 of income as it was in 2023, it will now be applied to the first $11,600 for an individual taxpayer filing in 2024.