Sunday, February 4, 2024

Tax brackets and you

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The Daily Money

ALL THE MONEY NEWS YOU NEED TO KNOW

Sun Feb 4 2024

Daniel de Visé | Personal Finance Reporter

Good morning! It's Daniel de Visé with your Daily Money, Sunday Tax Edition.

On Sundays between now and April 15, we'll walk you through what's new and newsworthy in Tax Season 2024.

Today, we'll talk about brackets: Not the March Madness kind, the tax kind.

Tax brackets and you

Every year, the Internal Revenue Service announces new tax brackets, tiers of income that are taxed at gradually higher rates under our progressive tax system.

You pay the lowest tax rate on the lowest tier of income, a slightly higher rate on the next-higher income tier, and so on. The higher your income, the higher your tax rate, but the highest rate applies only to the highest tier of your income.

Tax brackets rise with inflation. The brackets for 2023 are higher than the ones for 2022.

How do tax brackets work?

Let's say you earned $75,000 in 2023, and you're single. For the first $11,000 of income, you'll pay the lowest 2023 tax rate, 10%. For the tier of income between $11,001 and $44,725, you'll pay 12% tax. For your income above $44,726, you'll pay tax at a higher rate, 22%.

If your salary rises at about the same pace as inflation, you'll probably face roughly the same tax rate this year as last. If you got a big raise, you may rise into a higher tax bracket. If you took a pay cut, you could sink into a lower one.

Can I lower my tax bracket?

Sure. If you're married, run the numbers to see if you qualify for a lower tax bracket by filing jointly or individually. You may be able to lower your bracket by contributing more to a 401(k). Finally, consider whether to take the standard deduction or itemize: That decision, too, could put you in a lower bracket.

2023 tax brackets

Here are the 2023 tax brackets, for the tax return you file this year.

For individual filers:

◾ 37% for incomes over $578,125.

◾ 35% for incomes over $231,250.

◾ 32% for incomes over $182,100.

◾ 24% for incomes over $95,375.

◾ 22% for incomes over $44,725.

◾ 12% for incomes over $11,000.

◾ 10% for incomes below $11,000.

For married couples filing jointly:

◾ 37% for incomes greater than $693,750.

◾ 35% for incomes over $462,500.

◾ 32% for incomes over $364,200.

◾ 24% for incomes over $190,750.

◾ 22% for incomes over $89,450.

◾ 12% for incomes over $22,000.

◾ 10% for income below $22,000.

2024 tax brackets

And here are the 2024 tax brackets, for the return you will file in 2025.

For individual filers:

◾ 37% for incomes over $609,351.

◾ 35% for incomes over $243,725.

◾ 32% for incomes over $191,950.

◾ 24% for incomes over $100,525.

◾ 22% for incomes over $47,150.

◾ 12% for incomes over $11,600.

◾ 10% for incomes below $11,600.

For married couples filing jointly:

◾ 37% for incomes greater than $731,200.

◾ 35% for incomes over $487,450.

◾ 32% for incomes over $383,900.

◾ 24% for incomes over $201,050.

◾ 22% for incomes over $94,300.

◾ 12% for incomes over $23,200.

◾ 10% for incomes below $23,200.

About The Daily Money

This has been a special Sunday Tax Edition of The Daily Money. Each weekday, The Daily Money delivers the best consumer news from USA TODAY. We break down financial news and provide the TLDR version: how decisions by the Federal Reserve, government and companies impact you.

Daniel de Visé covers personal finance for USA Today.