IRS adjusts tax items for inflation in 2024By Michael Cohn
November 09, 2023
The Internal Revenue Service provided the annual inflation adjustments for tax year 2024, including increases in the standard deduction and changes in tax brackets.
Revenue Procedure 2023-34 spells out detailed information about approximately 60 tax provisions for next year, including the tax rate schedules along with other tax changes.
The tax year 2024 adjustments typically apply to income tax returns filed in 2025. Items of major interest to most taxpayers include the following:
- The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from 2023. For single taxpayers and married individuals filing separately, it rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, it will be $21,900 for 2024, an increase of $1,100 from 2023.
- Marginal rates: For tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly). The other rates are:
- 35% for incomes over $243,725 ($487,450 for married couples filing jointly).
- 32% for incomes over $191,950 ($383,900 for MFJ).
- 24% for incomes over $100,525 ($201,050 for MFJ).
- 22% for incomes over $47,150 ($94,300 for MFJ).
- 12% for incomes over $11,600 ($23,200 for MFJ).
- The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
- The Alternative Minimum Tax exemption amount for tax year 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700). For comparison, the 2023 exemption was $81,300 and began to phase out at $578,150 ($126,500 for married couples filing jointly, for whom the exemption began to phase out at $1,156,300).
- The maximum Earned Income Tax Credit amount for 2024 is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase from $7,430 for 2023. The revenue procedure includes a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
- For tax year 2024, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking increases to $315, an increase of $15 from the limit for 2023.
- For tax years starting in 2024, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,200. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount is $640, an increase of $30 from taxable years beginning in 2023.
- For tax year 2024, participants who have self-only coverage in a medical savings account, the plan must have an annual deductible that is not less than $2,800, an increase of $150 from tax year 2023, but not more than $4,150, an increase of $200 from 2023. For self-only coverage, the maximum out-of-pocket expense amount is $5,550, an increase of $250. For 2024, for family coverage, the annual deductible is not less than $5,550, an increase of $200; however, the deductible cannot be more than $8,350, an increase of $450 versus the limit for 2023. For family coverage, the out-of-pocket expense limit is $10,200 for 2024, an increase of $550.
- For tax year 2024, the foreign earned income exclusion is $126,500, increased from $120,000 for 2023.
- Estates of decedents who die during 2024 have a basic exclusion amount of $13,610,000, increased from $12,920,000 for estates of decedents who died in 2023.
The annual exclusion for gifts increases to $18,000 for calendar year 2024, increased from $17,000 for calendar 2023.The maximum credit allowed for adoptions for tax year 2024 is the amount of qualified adoption expenses up to $16,810, increased from $15,950 for 2023.
Items unaffected by indexing
By statute, some items that were indexed for inflation in the past currently are not adjusted:
- The personal exemption for tax year 2024 remains 0, as it was for 2023. This elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
- For 2024, as in 2023, 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
- The modified adjusted gross income amount used by taxpayers to determine the reduction in the Lifetime Learning Credit provided in Section 25A(d)(2) is not adjusted for inflation for taxable years beginning after Dec. 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).
New for 2024
Starting in calendar year 2023, the Inflation Reduction Act reinstates the Hazardous Substance Superfund financing rate for crude oil received at U.S. refineries, and petroleum products that entered into the United States for consumption, use or warehousing. The tax rate is the sum of the Hazardous Substance Superfund rate and the Oil Spill Liability Trust Fund financing rate.
For calendar years starting in 2024, the Hazardous Substance Superfund financing rate is adjusted for inflation. For calendar year 2024, crude oil or petroleum products entered after Dec. 31, 2016, will have a tax rate of $0.26 cents a barrel.