What's New for 2024

Tax News for 2024 Item- Highlight- Tax rate brackets and preferential rates for capital gains/qualified dividends The rate brackets for 2024 ordinary income remain at 10%, 12%, 22%, 24%, 32%, 35% and 37%, but the taxable income amounts in each bracket have changed. The top bracket of 37% for 2024 applies if taxable income exceeds $609,350 for single taxpayers and heads of households, $731,200for married persons filing jointly and qualifying surviving spouse, and $365,600 for married taxpayers filing separate returns (1.2).
Qualified dividends (5.2) and long-term capital gains (6.3) may escape tax entirely under the 0% rate, or be subject to capital gain rates of 15% or 20% depending on filing status, taxable income, and how much of the taxable income consists of qualified dividends and eligible long term gains (6.3). The 20% capital gain rate applies in 2024 when taxable income exceeds$518,900 for single taxpayers, $551,350for heads of households, $583,750 for married persons filing jointly and qualifying surviving spouse, and $291,850 for married persons filing separately. The 0%, 15%, and 20% rates do not apply to long-term gains subject to the 28% rate (collectibles and taxed portion of small business stock) or the 25% rate for unrecaptured real estate depreciation (6.3). Retirement plan distributions The SECURE Act raised the age to 72 for IRA owners who reached age 70½ after 2019, meaning those born on or after July 1, 1949. SECURE 2.0 raised the age again; anyone attaining age 72 after 2022 does not have to begin receiving RMDs until the year they reach age 73 (9.13). Education-related tax breaks Educator expenses of up to $300 are deductible for 2024 (13.2). Standard deductions The basic standard deduction for 2024 (14.1) is $29,200 for married persons filing jointly and qualifying surviving spouse,$21,900 for heads of households, or $14,600 for single taxpayers or married persons filing separately.
The additional standard deduction (14.4) for being 65 or older or blind increases to $1,950 if single or head of household ($3,800 if 65 and blind). If married filing jointly, the additional standard deduction increases to $1,550 if one spouse is 65 or older or blind, $3,100 if both spouses are at least 65 (or one is 65 and blind, or both are blind and under age 65). Self-employment tax and deduction for portion of self employment tax; Social Security wage base For 2024, the tax rate on the employee portion of Social Security is 6.2% on wages up to $168,600, so Social Security tax withholdings should not exceed $10,959 Medicare tax of 1.45% is withheld from all wages regardless of amount.
On Schedule SE for 2024, self-employment tax applies to earnings of up to $168,600; only 92.35% of earnings are taken into account. The 15.3% rate equals 12.4% for Social Security (6.2% employee share and 6.2% employer share) plus 2.9% for Medicare. If net earnings exceed $168,600 (after the reduction), the 2.9% Medicare rate applies to the entire amount (45.3-45.4).
One-half of the self-employment tax may be claimed as an above-the-line deduction on Schedule 1 of Form 1040 or 1040-SR (45.3-45.4). IRA and Roth IRA contributions Contributions to a traditional IRA for 2024 can be made as long as you have earned income (or other eligible income). You may make contributions to a traditional IRA for 2024 of up to $7,000, or $8,000 if you are age 50 or older at the end of 2024, provided that you have at least $7,00/$8,000 of earned income (9.2). Qualified business income deduction If you are a sole proprietor or have an interest in a partnership, limited liability company, or S corporation, you may be eligible for a deduction of up to 20% of qualified business income (40.24). This deduction is a personal deduction, not a business deduction, and can be claimed whether you itemize or take the standard deduction. The taxable income amounts used to figure the deduction for 2024 have been increased for inflation. First-year expensing For qualifying property placed in service in 2024, first-year expensing (42.3) is allowed up to a limit of $1,220,000, and the limit begins to phase out if the total cost of qualifying property exceeds $3,050,000 (42.3). IRS mileage allowance The IRS standard business mileage rate for 2024 is 67 cents per mile (43.1).
The rate for medical expense (15.9) and moving expense for certain military personnel (13.3) deductions reduced from 22 cents per mile in 2023 to 21 cents per mile for 2024.
For charitable volunteers (18.4), the mileage rate is unchanged at 14 cents a mile for 2024. Vehicle depreciation limit For a vehicle placed in service in 2024 and used over 50% for business, the first-year depreciation limit using bonus depreciation is $20,400. However, if you elect not to have bonus depreciation apply, or you are not eligible for the bonus, the first-year depreciation limit is $12,400 (43.5) Clean vehicle credit Credit of up to $7,500 for eligible new clean vehicles and up to $4,000 for eligible previously owned clean vehicles. Specific criteria must be met (25.16) Health savings accounts (HSAs) The definition of a high-deductible health plan, which is a prerequisite to funding an HSA, means a policy with a minimum deductible for 2024 of $1,600 for self-only coverage and a maximum out-of-pocket cap on co-payments and other amounts of $8,050. These limits are doubled for family coverage ($3,200/$16,100) (41.10).
The contribution limit for 2024 is $4,150 for self-only coverage and $8,300 for family coverage (41.11). Those age 55 or older and not yet on Medicare can add an additional $1,000 Adoption expenses For 2024, the limit on the adoption credit as well as the exclusion for employer-paid adoption assistance is $16,81O (4.6). The benefit phaseout range is modified adjusted gross income between $252,150 to $292,150 (25.9). Child tax credit For 2024, the maximum child tax credit for a child under age 17 is $2,000 (25.2). The credit begins to phaseout when modified adjusted gross income exceeds $400,000 on a joint return or $200,000 for all other filers. There is an additional child tax credit that can be claimed if the child tax credit otherwise allowed is limited by tax liability; the refundable amount may not exceed $1,600 per qualifying child (25.3). The credit for other dependents is unchanged (i.e., not refundable and limited to $500 per dependent) (25.4). Dependent care credit and exclusion For 2024, the child and dependent care credit is nonrefundable (25.5). Qualifying expenses taken into account in figuring the credit are $3,000 for one qualifying individual and $6,000 for two or more qualifying individuals. The credit ranges from 35% down to 20%, depending on adjusted gross income. The exclusion for dependent care under an employer's dependent care assistance plan is $5,000 ($2,500 if married filing separately). Earned income tax credit For 2024, the maximum credit amount is $4,213 for one qualifying child, $6,960 for two qualifying children, $7,830 for three or more qualifying children, and $632 for taxpayers who have no qualifying child (25.7). The phaseout ranges for the credit have been adjusted for inflation (25.8). The excessive investment income limit is $11,600. Premium tax credit For 2024, the premium tax credit is allowed even if household income exceeds 400% of the federal poverty line. The required contribution percentages are reduced (25.13). Alternative minimum tax (AMT) exemption and tax brackets The AMT exemptions, exemption phaseout thresholds, and the dividing line between the 26% and 28% AMT brackets are adjusted for inflation. The 2024 AMT exemptions (prior to any phaseout) are $133,300 for married couples filing jointly and qualifying surviving spouse, $85,700 for single persons and heads of households, and $66,650 for married persons filing separately. See 23.1 for exemption phaseout rules and AMT calculation details.
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