USA Income Tax 2023-24

What You Need to Know About Income Tax 2023-24 in the US

The federal income tax is one of the most important sources of revenue for the US government. It is also one of the most complex and confusing aspects of personal finance for many Americans. In this blog, we will explain the basics of income tax, the changes for the 2023-24 tax year, and some tips to help you plan ahead and save money on your taxes.

What is Income Tax?

Income tax is a tax that you pay on your income, which includes wages, salaries, tips, interest, dividends, capital gains, business income, retirement income, and other sources. The amount of income tax you owe depends on your filing status, your taxable income, and the tax rates that apply to your income brackets.

The US has a progressive income tax system, which means that the higher your income, the higher your tax rate. There are seven federal income tax rates in 2023: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. These rates are the same as in 2022, but the income thresholds for each bracket are adjusted for inflation every year by the Internal Revenue Service (IRS).

The IRS also provides a standard deduction, which is a fixed amount that you can subtract from your income before calculating your tax. The standard deduction for 2023 is $13,850 for single filers, $27,700 for married couples filing jointly, and $20,800 for heads of households. These amounts are also increased from 2022 to account for inflation.

In addition to the federal income tax, you may also have to pay state and local income taxes, depending on where you live and work. The rates and rules for these taxes vary by state and locality, so you should check with your state and local tax authorities for more information.

What are the Changes for the 2023-24 Tax Year?

The 2023-24 tax year is the period from January 1, 2023 to December 31, 2023. The taxes you owe for this period will be due by April 15, 2024. You can file your tax return either online or by mail using the forms and instructions provided by the IRS.

The main changes for the 2023-24 tax year are:

  • The income thresholds for each tax bracket are slightly higher than in 2022, as shown in Table 1 below.
  • The standard deduction is also higher than in 2022, as shown in Table 2 below.
  • The personal exemption, which was a fixed amount that you could deduct for yourself and each dependent, remains at $0. This means that you cannot claim any personal exemption for yourself or anyone else on your tax return. This change was introduced by the Tax Cuts and Jobs Act of 2017 (TCJA) and will last until 2025.
  • The Alternative Minimum Tax (AMT), which is a parallel tax system that applies to high-income taxpayers who have certain types of deductions and preferences, has higher exemption amounts and phaseout thresholds than in 2022. The AMT exemption amount for 2023 is $74,900 for single filers, $114,600 for married couples filing jointly, and $57,300 for married couples filing separately. The AMT phaseout threshold for 2023 is $536,700 for single filers, $1 million for married couples filing jointly, and $500,000 for married couples filing separately.

Table 1: Federal Income Tax Brackets and Rates for Single Filers, Married Couples Filing Jointly, and Heads of Households Tax Rate For Single Filers For Married Individuals Filing Joint Returns For Heads of Households

Tax RateFor Single FilersFor Married Individuals Filing Joint ReturnsFor Heads of Households
10%$0 to $11,000$0 to $22,000$0 to $15,700
12%$11,000 to $44,725$22,000 to $89,450$15,700 to $59,850
22%$44,725 to $95,375$89,450 to $190,750$59,850 to $95,350
24%$95,375 to $182,100$190,750 to $364,200$95,350 to $182,100
32%$182,100 to $231,250$364,200 to $462,500$182

100 to $231,

250||35%|$231,

250 to $578,

125|$462,

500 to $693,

750|$231,

250 to $578,

100||37%|$578,

125 or more|$693,

750 or more|$578,

100 or more|

Source: Internal Revenue ServiceĀ¹

Table 2: Standard Deduction for Single Filers, Married Couples Filing Jointly, and Heads of Households Filing Status Deduction Amount Single $13,850 Married Filing Jointly $27,700 Head of Household $20,800

Source: Internal Revenue ServiceĀ¹

How to Plan Ahead and Save Money on Your Taxes?

There are several ways that you can reduce your taxable income and lower your tax bill for the 2023-24 tax year. Some of the most common strategies are:

  • Contribute to a retirement account, such as a 401(k), an IRA, or a Roth IRA. These accounts allow you to save money for your future and defer or avoid taxes on your contributions and earnings. The contribution limits for 2023 are $20,500 for 401(k)s, $6,500 for IRAs, and $7,500 for Roth IRAs. If you are 50 or older, you can make an additional catch-up contribution of $6,500 for 401(k)s and $1,000 for IRAs and Roth IRAs.
  • Claim tax credits and deductions that you are eligible for, such as the child tax credit, the earned income tax credit, the child and dependent care credit, the education credits, the health savings account deduction, the mortgage interest deduction, the charitable contribution deduction, and the medical expense deduction. These credits and deductions can reduce your taxable income or directly lower your tax liability. However, some of them may have income limits, phaseouts, or other requirements that you need to meet. You should consult the IRS website or a tax professional for more details on how to claim these benefits.
  • Adjust your withholding or make estimated tax payments throughout the year. If you are an employee, you can adjust the amount of federal income tax that your employer withholds from your paycheck by filling out a new Form W-4. This can help you avoid underpaying or overpaying your taxes and facing penalties or refunds at the end of the year. If you are self-employed or have other sources of income that are not subject to withholding, you may need to make quarterly estimated tax payments to the IRS using Form 1040-ES. This can help you avoid interest and penalties for underpaying your taxes.

These are just some of the ways that you can plan ahead and save money on your taxes for the 2023-24 tax year. However, every taxpayer’s situation is different and may require more specific advice and guidance. Therefore, it is always a good idea to consult a qualified tax professional before making any major financial decisions or filing your tax return.

You may also like...

Leave a Reply

%d bloggers like this: