IRS tax bracket changes will increase take-home pay for a lot of workers

Don’t be surprised if employees are smiling a bit more after their first paychecks of 2024 come in. Many workers will see a bump in their take-home pay as a result of revised IRS tax brackets.

The Service raised limits for tiers in the federal tax bracket as well as standard deductions. The changes will help a lot of folks struggling to pay for nearly everything that costs more. Inflation’s leveled off in recent weeks but we’re a long ways away from seeing a return to early 2020 price levels for food, fuel, you name it.

The IRS periodically adjusts limits to prevent “bracket creep” for millions of taxpayers close to the limits. These changes for tax year 2024 are designed to reduce the effects of inflation on workers and households.

Employees can put their extra cash to use in a variety of ways. Benefits and Payroll pros can remind people about the short-term (but substantial) advantage of putting money into a health savings account. Using pre-tax money for healthcare adds up to nearly a one-third total dollar savings. That’s money the tax man can’t touch.

For the long term, increasing how much a person’s putting into his/her 401(k) plan helps boost retirement savings. Workers can adjust their 401(k) withholding rate if the plan doesn’t include automatic annual 1% increases.

Not all workers are aware of the tax bracket changes

The IRS announced 2024 tax brackets in early November. Here’s the breakdown:

• 37% for individual single taxpayers with income greater than $609,350 ($731,200 for married couples filing jointly)
• 35% – $243,725 ($487,450)
• 32% – $191,950 ($383,900)
• 24% – $100,525 ($201,050)
• 22% – $47,150 ($94,300)
• 12% – $11,600 ($23,200), and
• 10% – $11,600 or less ($23,200).

Most taxpayers claim the standard deduction to minimize the amount of taxable income. Good news: The standard deduction rate for married couples filing jointly jumps from $27,700 to $29,200 (a 5.4% increase). For individuals, the maximum deduction increases from $13,850 to $14,600.

In other tax news: The IRS provided employers new withholding tables a couple of weeks before Christmas, and also made modest increases to 401(k) and Individual Retirement Account contribution limits for employees.