Changes for Tax Year 2024: What You Need to Know

The IRS has announced several changes for the 2024 tax year, many of which could affect your return. Here are 12 key updates and situations to keep in mind:

1. Marginal Tax Rate Brackets Changed

The income ranges for the seven federal tax brackets have been adjusted by 5.4% for inflation. For instance, the 22% bracket now covers incomes from $47,151 to $100,525 for single filers, up from $44,726 to $95,375 in 2023. Even if your income hasn’t changed, your tax rate might.

2. The Standard Deduction Increased

Single filers can deduct $14,600 in 2024, up $750 from last year. Married couples filing jointly can deduct $29,200, a $1,500 increase. These adjustments reduce taxable income without requiring itemized deductions.

3. Tax Credits and Deductions Changed

Some credits and deductions are higher in 2024:

Child Tax Credit: For tax year 2024, the max credit taxpayers can claim for each qualifying dependent children under 17 is $2,000, which is unchanged from 2023.The Additional Child Tax Credit now refunds up to $1,700, $100 more than in 2023, even if you don't owe tax.

Adoption Credit: The max amount new adoptive parents may claim on qualified expenses went up to $16,810 for 2024 from $15,950 in 2023.

Earned Income Tax Credit: For taxpayers with no children, the credit increased to $632 (up from $600). For those with three or more children, it’s now $7,830.

Student Loan Interest Deduction: While the maximum deduction of up to $2,500 hasn't changed from 2023, the income eligibility limits have. Income eligibility thresholds rose to $165,000 for joint filers and $80,000 for single filers.

HSA and FSA Contributions: Maximum contributions increased by $300 for self-only HSA coverage, $550 for family coverage, and $150 for FSAs. Unused HSA balances carry over to the next year. If you have an FSA and don't use all that money and your plan allows it, you can carry over up to $640 to the next year.

4. Going Green Pays Off

If you bought an electric vehicle, you might qualify for the Clean Vehicle Credit of up to $7,500. For home upgrades, the Residential Clean Energy Credit and Energy Efficient Home Improvement Credit offer up to 30% back on costs for eligible installations like solar panels or insulation.

5. Sold NFTs or Digital Assets?

The IRS considers cryptocurrencies and NFTs as property. Long-term gains on these are taxed as capital gains, with rates of 0%, 15%, or 20%, depending on your income. Short-term gains are taxed as ordinary income, which can be as high as 37% depending on your federal tax bracket

6. Marriage and Taxes

If you tied the knot, congratulations! Filing jointly increases your standard deduction but could also expose you to the marriage penalty (meaning you and your spouse pay more taxes as a couple than if you were filing as singles) if your combined income exceeds $731,200.

7. A Growing Household

New family members, such as a baby or a dependent parent, may qualify you for credits like the Child Tax Credit, Adoption Tax Credit, or Credit for Other Dependents.

8. Remote Work Impacts

Working remotely across states could require you to file in multiple jurisdictions. Check reciprocity agreements or local tax rules to avoid surprises.

9. Teacher Expenses

Educators can now deduct up to $300 (up from $250) for unreimbursed classroom expenses. The taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide. They must also work at least 900 hours a school year in a school that provides elementary or secondary education.

10. Side Hustles, Online Sales, and Freelance Work

Earned income from a side hustle requires careful tax planning. Freelancers often need to pay quarterly estimated taxes or adjust withholdings to avoid penalties. If you receive more than $5,000 in payments through third-party platforms like Venmo and PayPal during calendar year 2024, you'll likely receive a 1099-K form which will require additional consideration for your tax return. Click here to learn more about the 1099-K.

11. Government Benefits

Unemployment benefits remain federally taxable and may also be taxed by your state (but not Texas). Plan accordingly to avoid unexpected bills.

12. Disaster Relief Provisions

If you live in a designated disaster area, you may qualify for extended deadlines, tax-free disaster relief payments, and penalty-free early retirement distributions.