The IRS has announced key inflation adjustments for the tax year 2024, which will impact tax returns filed in 2025. Here are the significant changes:
1. **Standard Deduction Increases**: For married couples filing jointly, the standard deduction is up by $1,500 to $29,200. For single taxpayers and those married filing separately, it rises to $14,600, a $750 increase. Heads of households will see an increase to $21,900, up by $1,100.
2. **Marginal Tax Rates**: The top tax rate remains at 37% for single individuals earning above $609,350 and married couples filing jointly with incomes over $731,200. Other rates range from 10% to 35%, applying to various income brackets.
3. **Alternative Minimum Tax (AMT)**: The AMT exemption for 2024 is $85,700, phasing out at higher income levels, compared to $81,300 in 2023.
4. **Earned Income Tax Credit (EITC)**: The maximum EITC for taxpayers with three or more qualifying children increases to $7,830.
5. **Qualified Transportation Fringe Benefits and Parking**: The monthly limitation rises to $315.
6. **Health Flexible Spending Arrangements**: The employee salary reduction contribution limit increases to $3,200, with a maximum carryover amount of $640.
7. **Medical Savings Account (MSA)**: Changes in minimum and maximum deductibles and out-of-pocket expenses for both self-only and family coverages.
8. **Foreign Earned Income Exclusion**: The exclusion amount is now $126,500.
9. **Estate and Gift Tax Exclusions**: The basic exclusion amount for estates of decedents is $13,610,000, and the annual exclusion for gifts is $18,000.
10. **Adoption Credit**: The maximum credit for 2024 is $16,810.
Items unchanged include the personal exemption, which remains at zero, no limitation on itemized deductions, and the unadjusted modified adjusted gross income threshold for the Lifetime Learning Credit.
Additionally, a noteworthy change is the reinstatement of the Hazardous Substance Superfund financing rate for crude oil and petroleum products, with an adjusted tax rate of $0.26 per barrel for 2024.
For a detailed understanding of how these adjustments may affect individual and business tax planning, it’s advisable to consult with tax professionals.
