IRS Announces Inflation-Adjusted Individual Tax Rates for 2024 by Tony Gutierrez, CPA
The IRS released the annual cost-of-living adjustments to various provisions of the tax code for 2024.
Marginal Income Tax Rates
The following seven tax rates apply to income individuals earn in 2024.
- 37 percent for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly)
- 35 percent for incomes over $243,725 ($487,450 for married couples filing jointly)
- 32 percent for incomes over $191,950 ($383,900 for married couples filing jointly)
- 24 percent for incomes over $100,525 ($201,050 for married couples filing jointly)
- 22 percent for incomes over $47,150 ($94,300 for married couples filing jointly)
- 12 percent for incomes over $11,600 ($23,200 for married couples filing jointly)
- 10 percent for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly)
The marginal income tax rates for trusts and estates also increase in 2024.
- 37 percent for income greater than $15,200;
- 35 percent for income between $10,550 and $14,450;
- 24 percent for income between $2,900 and $11,150; and
- 10 percent for income of $3,100 or less.
Standard Deduction vs. Itemized Deductions
The standard deduction for individual taxpayers rises to $14,600 in 2024, a $750 increase from 2023. For married couples filing joint tax returns, the 2024 standard deduction is $29,200, a $1,500 increase from the prior year. Taxpayers may use these amounts to automatically reduce their adjusted gross income (AGI) to determine their federal income tax brackets.
However, when taxpayers’ allowable expenses exceed the standard deduction in any given year, they may instead itemize their deductions and further reduce their taxable income and related tax liabilities. These deductible expenses may include student loan interest, mortgage interest, charitable donations, qualifying medical and dental expenses, and up to $10,000 paid toward state and local taxes.
Federal Gift and Estate Taxes
Individuals who pass away in 2024 may exclude $13,610,000 from federal estate tax, up from $12,920,000 for estates of decedents who died in 2023. Married couples filing joint tax returns may shield as much as $27,220,000 from federal estate tax in 2024, up from $25,840,000 in the prior year.
Current law calls for these generous estate tax exemptions to reset in 2026 and return to their 2017 levels of approximately $5 million for individuals and $10 million for married couples, adjusted for inflation. Consequently, high-net-worth families should begin planning to minimize their future exposure to estate taxes, which can be as high as 40 percent on assets exceeding these thresholds.
Gifting is one method families may use to remove appreciable assets from their taxable estates. In 2024, the maximum amount individuals may give to others without incurring federal gift tax is $18,000, up from $17,000 in 2023. While married couples who are both U.S. citizens can continue to make unlimited gifts to each other tax-free, only the first $185,000 a spouse makes to a non-U.S. citizen spouse may be excluded from the total amount of taxable gifts for 2024.
Alternative Minimum Tax (AMT)
For individual taxpayers, the AMT exemption in 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).
Kiddie Tax
Minor children younger than 19 and college students younger than 24 with 2024 unearned income (i.e., investment income) of $1,300 from sources other than salary and wages will be subject to tax at the same rate as trusts and estates. Parents may elect to include between $1,300 and $13,000 of an eligible child’s unearned income on their personal tax returns.
Adoption Tax Credit
The maximum credit taxpayers may receive for qualified adoption expenses incurred in 2024 increases to $16,820, up from $15,950 in the prior year. The credit’s availability begins to phase out when a taxpayer’s modified adjusted gross income (MAGI) exceeds $252,150, and it is completely phased out for taxpayers with MAGI of $292,150 or more.
Foreign Earned Income Exclusion
The foreign earned income exclusion in 2024 increases to $126,500, up from $120,000 for the 2023 tax year.
Health Care
The amount employees may contribute to a health flexible spending account via salary deferral in 2024 increases to $3,200, up from $3,050 the prior year. The maximum amount of unused funds account owners may carry over, if their plans allow, is $640.
For taxpayers with self-only coverage in a Medical Savings Account, plans must have an annual deductible of less than $2,650, but not more than $3,950, and the maximum out-of-pocket expense limit is $5,300. For family coverage, the annual deductible may not be less than $5,300 or more than $7,900, with an out-of-pocket expense limit of $9,650.
Deduction for Pass-Through Business Owners
The Section 199A deduction of up to 20 percent of qualified business income (QBI) available to eligible sole proprietors and owners of pass-through businesses (i.e., S Corporations) is subject to income limitations. For 2024, the deduction is reduced when taxable income exceeds $182,100 for individuals, or $364,200 for married couples filing jointly and is phased out entirely when individual income reaches $232,100, or $464,200 for married couples filing jointly.
About the Author: Tony Gutierrez, CPA, is a director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he focuses on tax and estate planning for high-net-worth individuals, family offices, and closely held businesses in the U.S. and abroad. He can be reached at the CPA firm’s Miami office at 305-379-7000 or info@bpbcpa.com.
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