US tax brackets will rise by about 5.4 percent next year in line with inflation, the Internal Revenue Service (IRS) has confirmed.
From 2024, the lowest tax rate of 10 percent will apply to those earning up to €11,600, down from €11,000 this year.
Meanwhile, the top rate of 37 percent will now apply to workers whose salaries exceed $609,350, up from $578,125 in 2023. The middle-income thresholds all saw similar increases.
These higher thresholds could mean savings for millions of workers across all income groups. They apply to the 2024 tax year, which means the returns were filed in 2025.
US tax brackets will rise by about 5.4 percent next year in line with inflation, the Internal Revenue Service (IRS) has confirmed
The IRS adjusts tax brackets annually to prevent a trend known as “bracket creep,” in which taxpayers are pushed into higher income brackets even though their purchasing power remains unchanged — or even decimated — by high inflation.
The increases are stronger during periods of high inflation. Currently, annual U.S. inflation is hovering at 3.7 percent — down from a high of 9.1 percent in June 2022 — but still well above the Federal Reserve’s target of 2 percent.
Employees will also benefit from an increase in the IRS standard deduction. This refers to the portion of a person’s income that is not taxed and can be used to reduce their tax bill.
Next year, the standard deduction will increase from $27,700 to $29,200 for married couples filing jointly. This amounts to an increase of 5.4 percent.
For individuals, the new maximum is $14,600, up from $13,850 this year.
The IRS adjusts tax brackets annually to avoid a trend known as “bracket creep,” in which taxpayers are pushed into higher income brackets even though their purchasing power remains unchanged — or even decimated — by high inflation.
Savers can also add an additional $500 per year to their 401(K)s and other retirement accounts starting in 2024
And the threshold for certain tax provisions has also been increased.
Families are now eligible for $7,830 per year through the income tax credit if they have three or more children. It’s an increase of $400 from the $7,430 payments for 2023.
Employees can also contribute larger amounts to their flexible healthcare expenses. The maximum contribution increases by approximately $150 to $3,200.
It comes after the IRS announced new 401(K) contribution limits last week, allowing savers to add an extra $500 a year to their retirement pots.
Starting next year, the limit will increase from the current level of $22,500 to $23,000. The new amount also applies to 403(b), most 457 plans and Thrift Savings Plans.
And contribution limits for IRAs will also increase from $6,500 to $7,000. Catch-up contributions remain unchanged for IRAs at $1,000.