SACRAMENTO, Calif. — The new year is almost here and with it comes some good news for your wallet. New IRS adjustments to tax brackets could help you take home more of your paycheck in 2024.
Inflation has hit many Americans hard and, to keep pace with increased costs, the IRS announced higher tax brackets and higher standard deductions.
“Because of those increases, they are making the tax system mirror those adjustments as well to make it more fair to the taxpayer,” said Flaminius Ching, CPA, Purewal & Ching LLP.
It means you could keep more of your paycheck.
“I've ran a few scenarios for an average couple that makes about $120,000 a year in taxable income. These changes could potentially save them $2,000 to $3,000 in a year,” said Ching.
Ching, a certified public accountant from Elk Grove, said to think about tax brackets like layers in a cake. The IRS changes the size of the layers when there’s inflation.
“They're basically going through and expanding those ranges of those layers of that cake,” he said.
Some key changes include the standard deduction for married couples filing jointly. It went up $1,500 from last year to $29,200.
For single taxpayers, the deduction is now $14,600 – a $750 increase.
“It's important to the taxpayer that when these ranges increase, if their income is relatively the same as the year before, they will in essence pay less taxes over the course of that tax year,” said Ching.
The new tax bracket changes are based on the Consumer Price Index (CPI) and are adjusted each year. They were adjusted 5.4% for 2024, which is less than last year’s historically high adjustment of about 7%. The IRS also adjusts for pre-tax contributions to your 401k.
“You can put more money away and therefore shelter it from income to begin with to be taxed,” said Ching.
Overall, it’s an upside to the persistent inflation Americans have dealt with in 2023. It’s important to remember the 2024 tax year adjustments generally apply to the income tax returns you’ll file in 2025.
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