The ongoing inflation woes crushing Americans could actually have a silver lining for some as some IRS adjustments could provide a break for some taxpayers.
While the Internal Revenue Service has not yet announced the 2024 adjustment of tax brackets due to annual inflation, that could be coming in the next few days as noted by Steve Grodnitzky of Bloomberg Tax. And analysts are projecting a roughly 5.4% increase as the standard deduction, tax bracket ranges, and other areas could be tweaked to reflect the higher prices in the nation.
“The IRS relies on a formula based on the consumer price index — which tracks a basket of goods and services typically bought by consumers — to adjust many tax policies each year, Grodnitzky noted,” according to CBS News. “Because inflation has eased this year, the annual boost is likely to be more moderate, with brackets rising about 5.4%.”
“For the income tax brackets, the dollar amounts have now increased, so for 2023, the lowest bracket for married filing jointly people is those making up to $22,000, but now it’s up to $23,200, so it basically changes how much you are going to be taxed,” Grodnitzky said.
The IRS plans 2024 tax bracket adjustments due to inflation. Last year saw a 7% increase, but this year expects a 5.4% rise. These adjustments curb “bracket creep,” potentially reducing taxes owed, e.g., singles’ lower bracket may increase from $22,000 (2023) to $23,200 (2024) pic.twitter.com/3w1qqtaKyF
— Earn Your Leisure (@EarnYourLeisure) October 21, 2023
Tax rates will reportedly remain unchanged in 2024 but the tax brackets could see changes in the coming year.
Also set to change is the standard deduction that many taxpayers take advantage of, rather than itemizing their deductions. Single filers who were deducting $13,850 this year will be able to claim a standard deduction of $14,600 in 2024. Married couples filing jointly will see a deduction of $29,200, up from $27,700.
Retirement accounts including 401(k)s and IRAs may see adjustments in the contribution limits, according to consulting company Mercer.
“The new 2024 contribution limit for 401(k)s is expected to be $23,000, up from $22,500 in the current tax year, Mercer said earlier this month,” CBS News reported.
The outlet noted:
Catch-up contributions, which are for workers over 50 who want to save an additional amount for retirement, will again be $7,500 in 2024, matching the current year. That’s because the catch-up calculation has a “a relatively large rounding value,” Mercer noted.
Meanwhile, the limit for IRA contributions is forecast to rise to $7,000 next year, up from $6,500 in 2023, according to Horizon Trust. The catch-up contribution for people over 50 will be $1,000, which means workers over 50 could contribute as much as $8,000 to their IRAs in 2024.
CBS News noted that according to Bloomberg, “Health savings accounts, which are available to workers with high-deductible health care plans, are expected to see their contribution rise to $4,150 for individuals and $8,300 for families.”
“That compared with $3,850 for individuals and $7,750 for families in the current tax year,” it added.
Reports of the potential changes to the code “are meant to act as damage control,” cautioned Nerdwallet. “People whose wages may not have kept up with inflation could see a benefit, and those who received a cost-of-living raise may avoid getting bumped into a higher tax bracket.”