[Updated on September 13, 2023 after the release of the inflation number for August 2023.]
My other post listed 2023 2024 401k and IRA contribution and income limits. I also calculated the inflation-adjusted tax brackets and some of the most commonly used numbers in tax planning for 2024 using the published inflation numbers and the same formula prescribed in the tax law. The official numbers will be announced by the IRS in October or November.
2023 2024 Standard Deduction
You don’t pay federal income tax on every dollar of your income. You deduct an amount from your income before you calculate taxes. About 90% of all taxpayers take the standard deduction. The other ~10% itemize deductions when their total deductions exceed the standard deduction. In other words, you’re deducting a larger amount than your allowed deductions when you take the standard deduction. Don’t feel bad about taking the standard deduction!
The basic standard deduction in 2023 and 2024 are:
| 2023 | 2024 | |
|---|---|---|
| Single or Married Filing Separately | $13,850 | $14,600 |
| Head of Household | $20,800 | $21,900 |
| Married Filing Jointly | $27,700 | $29,200 |
Source: IRS Rev. Proc. 2022-38, author’s calculation.
People who are age 65 and over have a higher standard deduction than the basic standard deduction.
| 2023 | 2024 | |
|---|---|---|
| Single, age 65 and over | $15,700 | $16,550 |
| Head of Household, age 65 and over | $22,650 | $23,850 |
| Married Filing Jointly, one person age 65 and over | $29,200 | $30,750 |
| Married Filing Jointly, both age 65 and over | $30,700 | $32,300 |
Source: IRS Rev. Proc. 2022-38, author’s calculation.
People who are blind have an additional standard deduction.
| 2023 | 2024 | |
|---|---|---|
| Single or Head of Household, blind | +$1,850 | +$1,950 |
| Married Filing Jointly, one person is blind | +$1,500 | +$1,550 |
| Married Filing Jointly, both are blind | +$3,000 | +$3,100 |
Source: IRS Rev. Proc. 2022-38, author’s calculation.
2023 2024 Tax Brackets
The tax brackets are based on taxable income, which is AGI minus various deductions. The tax brackets in 2023 are:
| Single | Head of Household | Married Filing Jointly | |
|---|---|---|---|
| 10% | $0 – $11,000 | $0 – $15,700 | $0 – $22,000 |
| 12% | $11,000 – $44,725 | $15,700 – $59,850 | $22,000 – $89,450 |
| 22% | $44,725 – $95,375 | $59,850 – $95,350 | $89,450 – $190,750 |
| 24% | $95,375 – $182,100 | $95,350 – $182,100 | $190,750 – $364,200 |
| 32% | $182,100 – $231,250 | $182,100 – $231,250 | $364,200 – $462,500 |
| 35% | $231,250 – $578,125 | $231,250 – $578,100 | $462,500 – $693,750 |
| 37% | Over $578,125 | Over $578,100 | Over $693,750 |
Source: IRS Rev. Proc. 2022-38.
The 2024 tax brackets are:
| Single | Head of Household | Married Filing Jointly | |
|---|---|---|---|
| 10% | $0 – $11,600 | $0 – $16,550 | $0 – $23,200 |
| 12% | $11,600 – $47,150 | $16,550 – $63,100 | $23,200 – $94,300 |
| 22% | $47,150 – $100,525 | $63,100 – $100,500 | $94,300 – $201,050 |
| 24% | $100,525 – $191,950 | $100,500 – $191,950 | $201,050 – $383,900 |
| 32% | $191,950 – $243,725 | $191,950 – $243,700 | $383,900 – $487,450 |
| 35% | $243,725 – $609,350 | $243,700 – $609,350 | $487,450 – $731,200 |
| 37% | Over $609,350 | Over $609,350 | Over $731,200 |
Source: author’s calculation.
A common misconception is that when you get into a higher tax bracket, all your income is taxed at the higher rate and you’re better off not having the extra income. That’s not true. Tax brackets work incrementally. If you’re $1,000 into the next tax bracket, only $1,000 is taxed at the higher rate. It doesn’t affect the income in the previous brackets.
For example, someone single with a $60,000 AGI in 2023 will pay:
| First 13,850 (the standard deduction) | 0% | ||
| Next $11,000 | 10% | ||
| Next $33,725 ($44,725 – $11,000) | 12% | ||
| Final $1,425 | 22% |
This person is in the 22% tax bracket but only a tiny fraction of the $60,000 AGI is really taxed at 22%. The bulk of the income is taxed at 0%, 10%, and 12%. The blended tax rate is only 9.1%. If this person doesn’t earn the final $1,425, he or she is in the 12% bracket instead of the 22% bracket but the blended tax rate only goes down slightly from 9.1% to 8.8%. Making the extra income doesn’t cost this person more in taxes than the extra income.
Don’t be afraid of going into the next tax bracket.
2023 2024 Capital Gains Tax
When your other taxable income (after deductions) plus your qualified dividends and long-term capital gains are below a cutoff, you will pay 0% federal income tax on your qualified dividends and long-term capital gains under this cutoff.
This is illustrated by the chart below. Taxable income is the part above the black line, after subtracting deductions. A portion of the qualified dividends and long-term capital gains is taxed at 0% when the other taxable income plus these qualified dividends and long-term capital gains are under the red line.
The red line is close to the top of the 12% tax bracket but they don’t line up exactly.
| 2023 | 2024 | |
|---|---|---|
| Single or Married Filing Separately | $44,625 | $47,025 |
| Head of Household | $59,750 | $63,000 |
| Married Filing Jointly | $89,250 | $94,050 |
Source: IRS Rev. Proc. 2022-38, author’s calculation.
For example, suppose a married couple filing jointly has $70,000 in other taxable income (after deductions) and $20,000 in qualified dividends and long-term capital gains in 2023. The maximum zero rate amount cutoff is $89,250. $19,250 of the qualified dividends and long-term capital gains ($89,250 – $70,000) is taxed at 0%. The remaining $20,000 – $19,250 = $750 is taxed at 15%.
A similar threshold exists on the upper end for qualified dividends and long-term capital gains. When your other taxable income (after deductions) plus your qualified dividends and long-term capital gains are above a cutoff, you will pay 20% federal income tax instead of 15% on your qualified dividends and long-term capital gains above this cutoff.
| 2023 | 2024 | |
|---|---|---|
| Single | $492,300 | $518,900 |
| Head of Household | $523,050 | $551,350 |
| Married Filing Jointly | $553,850 | $583,750 |
| Married Filing Separately | $276,900 | $291,850 |
Source: IRS Rev. Proc. 2022-38, author’s calculation.
2023 2024 Estate and Trust Tax Brackets
Estates and trusts have different tax brackets than individuals. These apply to non-grantor trusts and estates that retain income as opposed to distributing the income to beneficiaries. Grantor trusts (including the most common revocable living trusts) don’t pay taxes separately. The income of a grantor trust is taxed to the grantor at the grantor’s tax brackets.
Here are the tax brackets for estates and trusts in 2023 and 2024:
| 2023 | 2024 | |
|---|---|---|
| 10% | $0 – $2,900 | $0 – $3,100 |
| 24% | $2,900 – $10,550 | $3,100 – $11,150 |
| 35% | $10,550 – $14,450 | $11,150 – $15,200 |
| 37% | over $14,450 | over $15,200 |
Source: IRS Rev. Proc. 2022-38, author’s calculation.
2023 2024 Gift Tax Exclusion
Each person can give another person up to a set amount in a calendar year without having to file a gift tax form. Not that filing a gift tax form is onerous, but many people avoid it if they can. This gift tax exclusion amount will increase from $17,000 in 2023 to $18,000 in 2024.
| 2023 | 2024 | |
|---|---|---|
| Gift Tax Exclusion | $17,000 | $18,000 |
Source: IRS Rev. Proc. 2022-38, author’s calculation.
The gift tax exclusion is counted by each giver to each recipient. As a giver, you can give up to $17,000 each in 2023 to an unlimited number of people without having to file a gift tax form. If you give $17,000 to each of your 10 grandkids in 2023 for a total of $170,000, you still won’t be required to file a gift tax form. Any recipient can also receive a gift from an unlimited number of people. If a grandchild receives $17,000 from each of his or her four grandparents in 2023, no taxes or tax forms will be required.
2023 2024 Savings Bonds Tax-Free Redemption for College Expenses
If you cash out U.S. Savings Bonds (Series I or Series EE) for college expenses or transfer to a 529 plan, your modified adjusted gross income must be under certain limits to get a tax exemption on the interest. See Cash Out I Bonds Tax Free For College Expenses Or 529 Plan.
Here are the income limits in 2023 and 2024. The limits are in a phaseout range. You get a full exemption if your income is below the lower number in the range. You get no exemption if your income is above the higher number in the range. You get a partial exemption if your income falls within the range.
| 2023 | 2024 | |
|---|---|---|
| Single, Head of Household | $91,850 – $106,850 | $96,800 – $111,800 |
| Married Filing Jointly | $137,800 – $167,800 | $145,200 – $175,200 |
Source: IRS Rev. Proc. 2022-38, author’s calculation.
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