The Internal Revenue Service (IRS) recently released its annual inflation adjustments, providing taxpayers with important information for the upcoming tax year. These changes, which will apply to income tax returns filed in 2025, include adjustments to the standard deduction, income tax brackets, and various exemption amounts.

One of the key highlights of the IRS announcement is the increase in the standard deduction for different filing statuses. Married couples filing jointly will see their standard deduction rise to $29,200 for tax year 2024, a $1,500 increase from the previous year. Single taxpayers and married individuals filing separately will have a standard deduction of $14,600, an increase of $750. For heads of households, the standard deduction will be $21,900, a $1,100 increase.

The income tax brackets for tax year 2024 also received adjustments. The highest tax rate remains at 37% for single individuals earning over $609,350 and married couples filing jointly with incomes exceeding $731,200. Other rates include 35% for incomes over $243,725, 32% for incomes over $191,950, 24% for incomes over $100,525, 22% for incomes over $47,150, and 12% for incomes over $11,600. The lowest rate of 10% applies to single individuals earning $11,600 or less and married couples filing jointly with incomes of $23,200 or less.

Additionally, several other changes were highlighted by the IRS. The Alternative Minimum Tax (AMT) exemption amount for tax year 2024 is set at $85,700, with phase-outs starting at $609,350 for single individuals and $1,218,700 for married couples filing jointly. The maximum Earned Income Tax Credit (EITC) amount for qualifying taxpayers with three or more children will be $7,830 in 2024, up from $7,430 in 2023.

Other adjustments include an increase in the monthly limitation for qualified transportation fringe benefits and qualified parking to $315, up by $15 from the previous year. The maximum employee salary reduction contributions to health flexible spending arrangements will be $3,200 for tax year 2024, along with a maximum carryover amount of $640 for eligible cafeteria plans. Medical Savings Accounts will have an annual deductible range of $2,800 to $4,150 for self-only coverage and $5,550 to $8,350 for family coverage, with corresponding increases from the previous year.

The IRS also indicated that the foreign earned income exclusion will be $126,500 for tax year 2024, up $6,500 from the previous year. The basic exclusion amount for estates of decedents who passed away in 2024 will be $13,610,000, a $690,000 increase. The annual exclusion for gifts will rise to $18,000 in calendar year 2024, and the maximum credit allowed for adoptions will be up to $16,810.

These annual inflation adjustments announced by the IRS aim to keep pace with the changing economic landscape and provide taxpayers with appropriate deductions and exemptions. Taxpayers are encouraged to review these changes and consult with tax professionals or use IRS resources to ensure accurate and informed tax filing in the upcoming year.

For more detailed information on the adjustments, taxpayers can refer to Revenue Procedure 2023-34, published by the IRS.