The tax year 2024 adjustments described below generally apply to income tax returns filed in 2025. The tax items for tax year 2024 of greatest interest to most taxpayers include the following dollar amounts:
· The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023. For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 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 married couples filing jointly)
24% for incomes over $100,525 ($201,050 for married couples filing jointly)
22% for incomes over $47,150 ($94,300 for married couples filing jointly)
12% for incomes over $11,600 ($23,200 for married couples filing jointly)
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 amount 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 tax year 2024 maximum Earned Income Tax Credit amount is $7,830 for qualifying taxpayers who have three or more qualifying children, an increase of from $7,430 for tax year 2023. The revenue procedure contains 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 the taxable years beginning 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 tax year 2023. For self-only coverage, the maximum out-of-pocket expense amount is $5,550, an increase of $250 from 2023. For tax year 2024, for family coverage, the annual deductible is not less than $5,550, an increase of $200 from tax year 2023; however, the deductible cannot be more than $8,350, an increase of $450 versus the limit for tax year 2023. For family coverage, the out-of-pocket expense limit is $10,200 for tax year 2024, an increase of $550 from tax year 2023.
· For tax year 2024, the foreign earned income exclusion is $126,500, increased from $120,000 for tax year 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 year 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, certain items that were indexed for inflation in the past are currently not adjusted.
· The personal exemption for tax year 2024 remains at 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 § 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).
Business Use of a Taxpayer’s Personal Vehicle
The 2024 standard mileage rate applicable to eligible business use of a vehicle is 67¢ per mile, up from 65.5¢ in 2023.
PAYMENT CARD AND THIRD-PARTY TRANSACTIONS REPORTING REQUIREMENTS
Beginning January 1, 2024, Third Party Settlement Organizations would normally be required to report and furnish Form 1099-K by TPSOs to participating payees when sales total more than $600. However, the IRS plans for a $5,000 (rather than $600) threshold in 2024 as a phase in implementation of the $600 threshold. The minimum number of sales transactions criterion has been eliminated. The de minimis exemption applicable to TPSOs does not apply to PSEs that are merchant acquiring entities.
Employee Plan Contributions
Employee contributions to employer retirement plans are generally known as “elective deferrals” and are characteristic of 401(k) plans and 403(b) tax sheltered annuity plans. Unless elective deferrals are directed to a designated Roth account in the plan, the funds deferred are allocated to the plan before income taxes are paid. Funds allocated to a designated Roth account, in contrast, are made on an after-tax basis.
The specified dollar amount in 2024 is $23,000.1 The applicable limit on elective deferrals generally applies to the total of all elective deferral contributions (in the aggregate) made to such plans. Participants in 401(k) plans and 403(b) tax sheltered annuity plans that are age 50 or older by the end of the year may make catch-up contributions. The catch-up provision in the law permitting increased contributions by age 50 and older participants increases the otherwise applicable dollar limit on elective deferrals.
The applicable dollar amount for 2024 catch-up contributions is $7,500 and is indexed for inflation in subsequent years.
Qualified Retirement Plan Distributions
The tax treatment of distributions from a qualified retirement plan—other than qualified distributions from a designated Roth 401(k) or Roth 403(b) account—are generally taxable as ordinary income to the plan participant or beneficiary who receives them. Any distribution made to a participant from a qualified plan even if the distribution will be rolled over to another plan—requires that the trustee of the distributing plan withhold 20% of the distribution for taxes. Qualified distributions from a designated Roth 401(k) or Roth 403(b) account are tax free.
Early Distributions
A participant who takes a distribution from a qualified retirement plan before age 59½ is subject to a premature distribution tax penalty equal to 10% of the amount of the distribution the participant must include in income unless an exception applies. Early Distributions A participant who takes a distribution from a qualified retirement plan before age 59½ is subject to a premature distribution tax penalty equal to 10% of the amount of the distribution the participant must include in income unless an exception applies.
Required Qualified Plan Minimum Distributions
The SECURE Act 2.0 has increased the age at which RMDs must begin for individuals who attain age 72 after 2022 to age 73. Accordingly, traditional IRA holders may defer receipt of their first RMD until April 1st of the year following their 73rd birthday. Qualified plan participants continuing to be employed by the employer sponsoring the plan in which they participate may delay their RMDs until the later of age 73 or retirement. They, too, may defer receipt of the payment until April 1st of the year following age 73 or retirement.
The information provided above is just a portion of the changes that has taken place for the 2024 filing season.
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