.png)
The IRS's Revenue Procedure 2023-34 introduces pivotal updates effective for the tax year 2024. These adjustments, reflecting the economy's inflationary trends, are critical for taxpayers and tax professionals. This blog breaks down the major changes that will impact income tax returns filed in 2025.
Key Updates and Comparisons:
Marginal Tax Rates
Adjusted income brackets and tax rates for various income levels to accommodate inflation.
The highest tax rate remains at 37% for single filers earning above $609,350 and married couples filing jointly (MFJ) earning above $731,200.
Other rates are adjusted as follows:
35% for incomes over $243,725 (MFJ: over $487,450).
32% for incomes over $191,950 (MFJ: over $383,900).
24% for incomes over $100,525 (MFJ: over $201,050).
22% for incomes over $47,150 (MFJ: over $94,300).
12% for incomes over $11,600 (MFJ: over $23,200).
The lowest rate is 10% for incomes of $11,600 or less (MFJ: $23,200 or less).
"Kiddie Tax" Adjustments
Increased deduction for children's unearned income, reducing taxable amounts under "kiddie tax" rules.
The amount used to reduce the net unearned income subject to the "kiddie tax" is now $1,300, up from $1,250 in 2023.
Earned Income Tax Credit (EITC)
Expanded credit for low- to moderate-income taxpayers, especially those with multiple children.
The maximum EITC for 2024 is $7,830 for taxpayers with three or more qualifying children, up from $7,430 in 2023.
Alternative Minimum Tax (AMT)
Revised exemption and phase-out amounts to prevent middle-income taxpayers from facing the AMT.
The AMT exemption amount for 2024 is $85,700 (phasing out at $609,350)
$133,300 for MFJ (phasing out at $1,218,700).
In 2023, these were $81,300 and $126,500, respectively, with lower phase-out thresholds.
Standard Deduction
Increased standard deduction amounts to lower taxable income for most taxpayers.
For MFJ, the standard deduction is $29,200 in 2024 (up by $1,500 from 2023).
For single taxpayers and those filing separately, it's $14,600 (up by $750).
For heads of households, it's $21,900 (up by $1,100).
Health Flexible Spending Arrangement (FSA) Limits
Raised contribution limits for health FSAs, allowing more pre-tax income to be set aside for medical expenses.
The FSA contribution limit for 2024 is $3,200, up by $30 from $3,170 in 2023.
The maximum carryover amount is $640, which increased from the previous year.
Qualified Transportation and Parking Fringe Benefits
Higher pre-tax income limits for employee transportation and parking benefits.
The monthly limit for these benefits is $315 in 2024, a $15 increase from 2023.
Savings Bonds for Education Expenses
Adjusted income limits for tax benefits when using savings bonds for educational expenses.
Phase-out starts at a modified AGI of $145,200 for joint filers ($96,800 for others) in 2024, compared to $90,000 (single) and $180,000 (joint) in 2023.
Medical Savings Account (MSA) Adjustments
Increased limits for annual deductibles and out-of-pocket expenses for MSAs.
For self-only coverage in 2024, the annual deductible range is $2,800 (up by $150 from 2023) to $4,150 (up by $200 from 2023).
The maximum out-of-pocket expense amount is $5,550 (up by $250 from 2023).
For family coverage in 2024, the annual deductible range is $5,550 (up by $200 from 2023) to $8,350 (up by $450 from 2023).
The out-of-pocket expense limit is $10,200 (up by $550 from 2023).
Foreign Earned Income Exclusion
Higher exclusion limits for income earned outside the United States by American taxpayers.
The exclusion is $126,500 in 2024, up from $120,000 in 2023.
Estate Exclusion Amount
Increased threshold for estate taxes to accommodate inflation, affecting estate planning and wealth transfer.
Increased threshold for estate taxes to accommodate inflation, affecting estate planning and wealth transfer.
Gift and Adoption Credit Adjustments
Enhanced tax benefits for gift-giving and adoption-related expenses.
The annual gift exclusion is $18,000 in 2024 (up from $17,000).
The maximum adoption credit is $16,810, increased from $15,950.
Penalty for Late Filing (1040)
Increased penalties for taxpayers who fail to file their tax returns on time.
The minimum penalty in 2024 is $510, or 100% of the tax owed, increased from $450 in 2023.
Revenue Procedure 2023-34 marks significant changes in tax regulations for 2024. Understanding and adapting to these changes is vital for effective tax planning and compliance. This guide aims to provide a comprehensive overview for taxpayers and professionals.
By JP Marino, EA
Comments