Jan 1, 2024 - Business

These 2024 IRS changes can increase paychecks, lower taxes

Illustration: Shoshana Gordon/Axios

The new year brings slightly larger paychecks to many Americans thanks to changes the IRS made to adjust for inflation.

Why it matters: Cost-of-living adjustments — such as those on taxes, wages and Social Security payments — are crucial as consumers cope with inflation and high prices.

The big picture: New IRS tax brackets and increased standard deductions go into effect Jan. 1 along with other tax inflation adjustments that include the mileage rate increasing by 1.5 cents a mile and higher contribution limits for tax-deferred retirement plans.

Zoom in: The IRS also changed 2024 tax withholding tables, which determine how much money employers should withhold from employee wages in paychecks for federal taxes.

2024 income tax brackets

The IRS adjusts tax brackets every year in an attempt to stop "bracket creep," which happens when inflation pushes taxpayers into a higher income tax bracket without an increase in real income.

Data: IRS; Chart: Axios Visuals
Data: IRS; Chart: Axios Visuals

Standard tax deductions for 2024 tax year

Details: The 2024 tax year standard deduction for married couples filing jointly will be $29,200, a $1,500 increase from $27,700 for the 2023 tax year.

  • For single taxpayers, the standard deduction is $14,600, an increase of $750 from the 2023 deduction of $13,850.
  • For heads of households, the standard deduction will be $21,900, an increase of $1,100 from the amount for tax year 2023.

IRA, 401(k) contribution limit increases 2024

Americans can contribute up to $23,000 into 401(k), 403(b) and most 457 plans — $500 more than the $22,500 contribution limit for 2023, the IRS said in a November news release.

  • The limit on annual contributions to an IRA increases to $7,000, up from $6,500.

The IRA catch-up contribution limit for individuals aged 50 and over remains at $1,000 for 2024, the IRS said.

  • For 401(k) and most other plans, the catch-up contribution limit for employees 50 and over is $7,500 for 2024.

Zoom out: The income ranges for determining eligibility to make deductible contributions to traditional IRAs, to contribute to Roth IRAs and to claim the Saver's Credit all increased for 2024, the IRS said.

FSA contribution limit increase

Be smart: The IRS raised the limit for 2024 contributions to health flexible spending arrangements to $3,200, up from $3,050 for 2023.

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