Inflation caused a whopping 7.1% inflation-adjusted increase in tax bracket limits for 2023, and according to a new report from Bloomberg Tax, the inflation-adjusted amounts in the tax code are expected to rise 5.4% in 2024. This projection comes as the U.S. Bureau of Labor reported that the consumer price index increased 0.6% in August after a smaller increase of 0.2% in July.
Lower inflation in prior months was a sign of progress for many as individuals and business owners alike endured sustained rate hikes by the Federal Reserve, but it seems like inflation will once again have a significant impact on tax rates for 2024.
Comparison of 2023 tax brackets to the 2024 projections
|
Individual Income Tax Brackets (Married filing jointly) |
||
|
2023 |
2024 Projections |
|
|
10% |
$0-$22,000 |
$0 to $23,200 |
|
12% |
$22,001 to $89,450 |
$23,201 to $94,300 |
|
22% |
$89,451 to $190,750 |
$94,301 to $201,050 |
|
24% |
$190,751 to $364,200 |
$201,051 to $383,900 |
|
32% |
$364,201 to $462,500 |
$383,901 to $487,450 |
|
35% |
$462,501 to $693,750 |
$487,451 to $731,200 |
|
37% |
$693,751 and above |
$731,201 and above |
|
Individual Income Tax brackets (Single filers) |
||
|
2023 |
2024 Projections |
|
|
10% |
$0 to $11,000 |
$0 to $11,600 |
|
12% |
$11,001 to $44,725 |
$11,601 to $47,150 |
|
22% |
$44,726 to $95,375 |
$47,151 to $100,525 |
|
24% |
$95,376 to $182,100 |
$100,526 to $191,950 |
|
32% |
$182,101 to $231,250 |
$191,951 to $243,725 |
|
35% |
$231,251 to $578,125 |
$243,726 to $609,350 |
|
37% |
$578,126 and above |
$609,351 and above |
|
Standard Deduction |
||
|
Filing status |
2023 |
2024 Projections |
|
Married Filing Jointly/Surviving Spouses |
$27,700 |
$29,200 |
|
Heads of Household |
$20,800 |
$21,900 |
|
All Other Taxpayers |
$13,850 |
$14,600 |
|
Alternative Minimum Tax |
||
|
Filing status |
2023 Exemption |
2024 Projections |
|
Married Filing Jointly/Surviving Spouses |
$126,500 |
$133,300 |
|
Unmarried Individuals |
$81,300 |
$85,700 |
|
Married Filing Separately |
$63,250 |
$66,650 |
|
Estates and Trusts |
$28,400 |
$29,900 |
|
Qualified Retirement Contributions |
||
|
Filing status |
2023 |
2024 Projections |
|
Married Filing Jointly |
$116,000 |
$123,000 |
|
All Other Taxpayers |
$73,000 |
$77,000 |
|
Married Filing Separately |
$0 |
$0 |
|
Spouses Who Are Not Active Participants |
$218,000 |
$230,000 |
Contributing factors for 2024 limit increases
The projections from Bloomberg factor in tax changes included in last year's Inflation Reduction Act and the SECURE 2.0 Act. For the Inflation Reduction Act, one major change is an increase in the Section 179D deduction for energy-efficient commercial building property if new wage and apprenticeship requirements are met. For the SECURE 2.0 Act, changes include an increase in the wage limitation amount for the additional Section 45E credit for small employer pension plan startup costs from $100,000 to $140,000.
Plan for the inflation-adjusted tax rates
Knowing that inflation will have a significant impact on the 2024 filing season, business owners and individuals will need to keep these higher thresholds in mind when planning for 2024. Estate and gift tax planning is one area that benefits from inflation-adjusted rates.
The annual exclusion for gifts has gone from $17,000 in 2023 to $18,000 in 2024, allowing for larger gifts without tax implications. And for any decedent dying in the calendar year, the basic exclusion amount is $13,610,000. Keep in mind that the favorable estate and gift tax exemption will expire in 2025 and revert to pre–Tax Cuts and Jobs Act levels, which will be much lower than current levels.
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