IRS just announced the 2024 tax rate increases. This lowers taxes for 2024, but are a temporary relief before tax rates increase after another 2 years.
It’s been said that “the tax code is written in pencil”. Meaning that Congress can change the tax code at any point. Which they do, and have done. For example:
- 2023 RMD penalty decreased from 50% to 25% (how nice of them)
- 2022 RMD Ages increased from 72 to 73, eventually to 75 as part of the SECURE Act 2.0 [1]
- 2019 RMD changes from 70 ½ to 72 as part of the SECURE Act[2]
- 2018 Temporarily lowered tax rates as part of the Tax Cuts & Jobs Act (TCJA) [3]
- 2017 Standard Deductions nearly doubled as part of the TCJA
It’s the second to last one last one that has a catch. The tax rate cuts are temporary.
I'll be following up on another post for the 401k, IRA, and standard deduction changes, but I want to take a minute and call out the tax bracket changes.
Our tax rates are lower today than they were pre-2018. Here is a side-by-side comparison of what tax rates were before the Tax Cut and Jobs Act, what they are today in 2023 and what they will be in 2024.[4]
| Married Filing Jointly | |||||
| Pre-2018 | Today | 2024 | |||
| 10% | $0-$19,050 | 10% | $0-$20,000 | 10% | $0-$23,200 |
| 15% | $19,050-$77,400 | 12% | $22,001-$89,450 | 12% | $23,201-$94,300 |
| 25% | $77,400-$156,150 | 22% | $89,451-$190,750 | 22% | $94,301-$201,050 |
| 28% | $156,150-$237,950 | 24% | $190,751-$364,200 | 24% | $201,051-$383,900 |
| 33% | $237,950-$424,950 | 32% | $364,201-$462,500 | 32% | $383,901-$487,450 |
| 35% | $424,950-$480,050 | 35% | $462,501-$693,750 | 35% | $487,451-731,200 |
| 39.60% | Over $480,050 | 37% | Over $693,750 | 37% | Over $731,201 |
| Note: The Head of Household filing status is retained, with a separate bracket schedule. | |||||
| Single Filer | |||||
| Current Law | Today | 2024 | |||
| 10% | $0-$9,525 | 10% | $0-$11,000 | 10% | $0-$11,600 |
| 15% | $9,525-$38,700 | 12% | $11,001-$44,725 | 12% | $11,601-$47,150 |
| 25% | $38,700-$93,700 | 22% | $44,726-$95,375 | 22% | $47,151-$100,525 |
| 28% | $93,700-$195,450 | 24% | $95,376-$182,100 | 24% | $100,525-191,950 |
| 33% | $195,450-$424,950 | 32% | $182,101-$231,250 | 32% | $191,951-$243,725 |
| 35% | $424,950-$426,700 | 35% | $231,251-$578,125 | 35% | $243,726-609,350 |
| 39.60% | Over $426,700 | 37% | Over $578,125 | 37% | Over $609,351 |
But these rates are not supposed to stay this low. Congress built the Tax Cuts & Jobs Act (TCJA) that rates will automatically go up, or “sunset”, after 12/31/2025.
This means those tax cuts will likely go up unless Congress does something about it.
As Yogi Berra famously said, “Predictions are hard, especially about the future”. Now I don’t know what Congress will do, but practically every economist I speak to does not see how Congress can extend most of these tax rates.
We could likely see Congress extend the 10% and 12% brackets, but every other bracket looks like it will sunset to the higher rate.
The recent 2024 announcement extended the brackets is a temporary relief that helps adjust for inflation, but proper planning is called for to help manage taxes for when rates do eventually increase.
This is a risk we can see ahead of time and can plan around. But the planning needs to be done.
[1] https://www.iwmfinancial.com/blog/the-secure-act-2-0-passed-with-a-lot-to-go-through
[2] https://www.iwmfinancial.com/blog/irs-announces-higher-estate-and-gift-tax-limits-for-2020
[3]https://www.iwmfinancial.com/blog/what-the-new-tax-bill-means-for-you
[4]https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024