A quick guide to income tax brackets

The new year is just around the corner, which means the release of new tax brackets that you can factor into your financial plans for 2024. Each year, the IRS announces new tax brackets, which are updated to account for inflation. While this might sound unfair, it could actually be helpful for your bottom line. As USA Today explains, "[i]f the IRS didn't adjust the federal income tax brackets for inflation you'd likely end up in a higher tax bracket since salaries are often adjusted for inflation."

For tax year 2024, tax rates themselves aren't actually changing. However, there are changes to the tax brackets. This could shift how things look for your taxes this year — specifically, how much you pay on some of your income. If your filing status has changed since last tax year, that could also have an impact.

First, a quick refresher on how income tax brackets work

Before we dive straight into the numbers, let's make sure we're all on the same page as far as how income tax brackets work. Put simply, a tax bracket "is the range of incomes taxed at given rates, which typically differ depending on filing status," explained the Tax Foundation. Filing statuses include single filers, married couples filing jointly, married couples filing separately, and head of household filers, each of which has their own distinct tax brackets.

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In the U.S., rates go up the higher someone's income is. So, a person who earns under $10,000 is taxed at a lower rate than someone whose annual taxable income is over $500,000. There are seven different tax brackets in the U.S., starting at 10% and topping out at 37%.

What are the 2024 income tax brackets and rates?

For federal income tax returns filed for tax year 2024 (meaning, the tax returns you file in early 2025), the following tax brackets and rates apply:

How will tax brackets change for 2024?

As is standard to prevent "bracket creep," a phenomenon that "happens when inflation pushes taxpayers into a higher bracket without any real increase in income or buying power," the IRS has increased income thresholds across tax brackets for 2024, explained USA Today. According to The Washington Post, the thresholds for the seven tax brackets went up "by 5.4% for 2024, meaning a single person will be able to earn $609,350 before being taxed at the highest tax rate of 37%."

Further, per Kiplinger, the 2024 tax brackets "have become comparatively wider than before," referring to "the difference between the lowest and highest dollar amounts in a tax bracket." As Kiplinger explained, "one of the tax effects of high inflation is that it impacts the tax bracket ranges," and so "wider tax brackets play a role in preventing 'bracket creep'" as well.

This widening of the brackets is good news for taxpayers — it means there's a lower chance that those whose income either remains the same or doesn't keep pace with inflation will end up in a higher tax bracket next year.

Can you lower your tax bracket?

It certainly is possible to lower your tax bracket, and there are a number of ways you can go about doing it. This includes:

• Filing under a different status: According to USA Today, how you file could affect which tax bracket you qualify for: "If you're married, filing a joint return with your spouse could qualify you for a lower tax bracket. Or depending on your income and circumstances, you may lower your tax bracket by filing an individual return."
• Contributing to a 401(k) or IRA: You may also lower your tax bracket by contributing to a 401(k) plan, as your contributions will lower your taxable income. Contributing to an IRA could also allow you to secure a tax deduction, which could help with lowering your tax bracket.
• Looking at the effect of standard vs. itemized deductions: USA Today also advises calculating how taking the standard deduction as opposed to itemized deductions shifts things, "since it could put you in a lower bracket, depending on your financial situation."

New Tax Rules for 2023: Download your free issue of The Kiplinger Tax Letter today. No information is required from you.