Every tax filing season comes with an array of updates tax professionals need to familiarize themselves with. With inflation rates higher than they've been since the early 1980s, it’s not surprising that it’s also affecting tax updates.
Dive in as we unwrap the most significant 2024 tax changes to help you stay ahead.
Inflation adjustments to the standard deduction
For the 2024 tax filing season, there's a noteworthy increase in the standard deduction amount for all tax filing statuses.
The standard deduction amounts for 2023 tax returns (those filed in 2024) are:
- Married couples filing jointly: $27,700 (up from $25,900 in 2022)
- Single taxpayers and married individuals filing separately: $13,850 (up from $12,950 in 2022)
- Heads of household: $20,800 (up from $19,400 in 2022)
Since nearly 90 percent of taxpayers claim the standard deduction, this increase should impact many taxpayers who work with tax professionals.
2024 tax changes: Tax brackets
As with the standard deduction, the IRS fine-tuned tax brackets to adjust for inflation. These adjustments ensure that tax rates reflect actual purchasing power rather than basing them on nominal amounts. Tax professionals should review these revised tax brackets closely to optimize filing strategies for their clients.
Tax Rateii | Single | Married Filing Jointly | Head of Household |
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 and up | $693,750 and up | $578,100 and up |
Updates to AMT exemption amounts
The Alternative Minimum Tax (AMT) exemption amount has also seen inflation-driven adjustments. The exemption is the amount of income taxpayers are allowed to exempt when calculating their alternative minimum taxable income (AMTI). It’s designed to prevent low- and middle-income taxpayers from being required to pay the AMT.
For the 2023 tax year, the AMT exemption amount is $81,300 for single filers and $126,500 for married couples filing jointly. This is a significant increase over the 2022 exemption amounts, which were $75,900 for single filers and $118,100 for married couples filing jointly.
AMT exemptions phase out at 25 cents per dollar once their AMTI reaches $578,150 for single filers or $1,156,300 for married taxpayers filing jointly. In the prior year, exemptions began to phase out at $539,100 for single filers and $1,079,800 for married couples filing joint returns.
These are significant changes, given the potential impact of the AMT on certain taxpayers.
Earned Income Tax Credit: Higher credit amounts and income limits
Yet another facet of the tax code influenced by inflation adjustments is the Earned Income Tax Credit (EITC).
To qualify for the EITC for the 2023 tax year, taxpayers must have adjusted gross income (AGI) below the limit. That limit is based on the number of dependents claimed on their tax return. For the 2023 tax year, those income limits are as followsiii:
Dependents Claimed | Single, Head of Household, or Qualifying Widow(er) | Married Filing Jointly |
0 | $17,640 | $24,241 |
1 | $46,560 | $53,120 |
2 | $52,918 | $59,478 |
3 or more | $56,838 | $63,698 |
The maximum credit amount is also adjusted annually for inflation. The table below shows the maximum EITC credit amounts for 2023 based on the number of qualifying dependents claimed on the taxpayer's return.
Qualifying Dependents | Maximum Credit Amount |
0 | $600 |
1 | $3,995 |
2 | $6,604 |
3 or more | $7,430 |
As a reminder, taxpayers cannot claim the EITC for 2023 if they have investment income over $11,000 or are married but file separately from their spouse.
Expansion of Form 1099-K Reporting
A notable change in the 2023 tax year is the expansion of entities that will receive Form 1099-K.
If you or your clients accept payments for goods or services over third-party payment networks such as Venmo, PayPal, Stripe, Square, Zelle, or CashApp, they're more likely to receive this form for the 2023 tax year than they were in the past.
This change is due to the reduced reporting threshold for 1099-K starting in 2023. As a reminder, before 2023, third-party payment platforms were not required to report transactions below $20,000 or less than 200 total transactions. However, the American Rescue Plan Act lowered this threshold, requiring platforms to report transactions to the IRS if the taxpayer transacted more than $600 a year. This change aims to increase transparency and tax compliance in the digital payment ecosystem.
That lower threshold was supposed to start in 2022, but the IRS delayed implementation for one year due to an onslaught of criticism. Despite having additional time to comply with the changes, many tax professionals expect to see some hiccups in the first year. Taxpayers may receive Form 1099-K in error if the form reports payments that were gifts or personal reimbursements from family and friends. They may also receive 1099-NEC and 1099-K for the same amounts—one from the payee and one from the third-party payment platform.
Congress has introduced legislation to increase the 1099-K reporting threshold to $10,000. The AICPA expressed support for the changeiv, so tax professionals should stay on top of future developments.
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Resources
i. Internal Revenue Service, “SOI Tax Stats – Tax State-at-a-Glance,” updated August 1, 2023, accessed October 10, 2023.
ii. Alex Durante, “2023 Tax Brackets,” Tax Foundation, published October 18, 2022, accessed October 10, 2023.
iii. Internal Revenue Service, “Earned Income and Earned Income Tax Credit (EITC) Tables,” updated March 8, 2023, accessed October 10, 2023.
iv. AICPA, “AICPA Favors Modifying Requirements to Form 1099-K Reporting Threshold,” published June 5, 2023, accessed October 10, 2023.