What's Changing in the 2024 Federal Tax Brackets?

With the end of the fiscal year coming to a close, the IRS recently announced the 2024 tax brackets. Inflation is impacting many areas of the economy, and the 2024 tax brackets are one of them.

Once a year, the Internal Revenue Service (IRS) reviews various tax provisions and adjusts them to account for inflation. This is called bracket creep, which happens when inflation pushes people into higher tax brackets. The tax brackets announced for 2024 will apply to taxpayers filing taxes in 2025.

No matter your tax situation, these tax bracket changes will impact how you file your taxes. Let’s take a look at the tax bracket changes for 2024 and some other 1099 tax law changes and updates.

What are tax brackets?

Tax brackets are essentially income ranges that determine the rate at which your income is taxed. The more you earn, the higher the percentage of your income that goes to taxes. It's like a scale where different portions of your income fall into different tax rates.

Since the US operates on a progressive tax scale, people with lower incomes are taxed at lower rates, and those with higher incomes are taxed at higher rates. As your income increases, your tax rate increases.

Here's a simple breakdown: Let's say there are three tax brackets - 10%, 20%, and 30%. If you fall into the 10% bracket, you pay that rate on the portion of your income that falls into that bracket. If you earn more and enter the 20% bracket, you pay 20% on the income within that range, and so on.

Tax brackets vs tax rates

In our tax system, think of your income as divided into different ranges. These ranges are called tax brackets. Each tax bracket has its own tax rate, essentially the percentage of your income you owe in taxes.

Tax brackets represent the ranges of income on which different tax rates are applied. In a progressive tax system, as your income increases, you move into higher tax brackets, each with its own tax rate.

Tax rates are the percentages at which specific portions of your income are taxed. Different tax rates apply to different income ranges in a progressive tax system. Not all of your income is taxed at the highest rate. If the tax rate in the highest bracket is 30%, the income falling within that bracket is taxed at a 30% rate.

Tax brackets:

• Divisions of income ranges.
• Each bracket has a specific range of income.

Tax rates:

• Corresponding percentages are assigned to each bracket.
• Determines the portion of income taxed at that rate.

So, to put it simply, tax brackets organize income into segments and tax rates dictate the percentage owed for each segment.

2024 vs 2023 tax brackets

For both 2023 and 2024, there are seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Thanks to the Tax Cuts and Jobs Act, the federal income tax rates will remain the same, but the income thresholds that determine the tax brackets will be adjusted.

Wondering how tax brackets work? It’s not as simple as comparing your salary to the tax brackets. Let's say you have an annual income of $50,000 as a single filer working for Uber.

- The first $11,600 is taxed at 10%: $1,160

- The next  $35,550 ($47,150 minus $11,600) will be taxed at 12%: $4,266

- The remaining $2,850 ($50,000 minus $47,150) will be taxed at 22%: $627

So the total tax you would pay on your $50,000 salary is $1,160 + $4,266 + $627 = $6,053. Of course, this doesn’t include any self-employed deductions or tax credits. A simpler way to do this is using FlyFin’s tax bracket calculator. You’ll have an accurate answer without the need for all of these calculations. Remember that you’ll still be responsible for paying quarterly taxes, too.

What are the other tax changes for 2024?  

One big projected change for the upcoming tax year was the 1099-K threshold. But in the end, it has been postponed again. 1099-Ks are sent when you use third-party payment processing systems like Paypal or Venmo or when making debit and credit card transactions.

Previously, you needed $20,000 in sales and 200 transactions or more. The projected threshold for 2023 tax filing was lowered to $600. So if you sold some baby coats on Poshmark, some scarves on Etsy or video games on eBay and your sales total $600 or more, a 1099-K would arrive in your inbox from the vendor.

But, the IRS decided to delay the $600 threshold and instead is projecting a $5,000 threshold for the 2024 tax filing year.

Another 2024 tax change is that if you have ten or more tax returns, you’ll be expected to e-file them. This will help streamline the process for the IRS and eliminate a paper backlog.

The last change worth mentioning is the standard deduction rate. For single filers, there is a $750 increase compared to 2023. Married couples filing jointly get a $1,500 increase from the previous year. You have the option to take the standard deduction or itemize deductions and should pick the one that will get you the best possible tax savings.

As we anticipate the tax season in 2024, understanding the changes in the federal tax brackets becomes pivotal for effective financial planning. It’s always best to consult with a tax professional for help navigating the world of tax planning. FlyFin’s CPAs will be there for you every step of the way when it comes to taxes. They offer unlimited support and can answer all of your tax questions. FlyFin’s A.I. will also find every possible deduction. With this man plus machine combo, you're sure to save the most ever.