Tax Law Changes for 2024
3 min read
This year brings with it several tax changes, many based on inflation adjustments which should result in you seeing more money in your paychecks.
Other changes include reinstating some business deductions and credits that were temporarily eliminated by the Tax Cuts and Jobs Act, funded through measures against reckless ERTC claim promoters. Read on to discover what’s new this year!
Increase in the Standard Deduction
2024 marks an increase in the standard deduction based on an inflation indexing formula, impacting taxpayers of all income levels.
Other deductions indexed to inflation, like mortgage interest and property taxes, also increase with inflation. Unfortunately, however, Tax Cuts and Jobs Act eliminated many miscellaneous itemized deductions, but these will revert back to pre-TCJA levels starting in 2026.
The Tax Cuts and Jobs Act (TCJA) also suspended deductibility of home equity loan interest; however, this will return to its pre-TCJA levels in 2026. In addition, permanent corporate tax rate reduction and expensing short-lived business assets will all return back to pre-TCJA levels; also child tax credits will increase and marriage penalties will be repealed as all previous changes revert back.
Increase in the AMT Exemption Threshold
In 2024, AMT exemption thresholds will increase for individuals, making it less likely that higher-income taxpayers will be subject to the alternative minimum tax (AMT). The AMT serves as a parallel set of rules designed to ensure that people with substantial incomes don’t use so many deductions and tax breaks that their federal taxes become zero.
The AMT taxes a variety of investment income, such as gains on incentive stock options and excess depreciation write-offs, as well as tax preference items not allowed under regular tax rules.
The AMT exemption levels are updated each year to keep pace with inflation, but under the Tax Cuts and Jobs Act (TCJA), exemption and phaseout levels have been significantly raised until 2025, decreasing the risk of an AMT hit for many. After that date, exemption amounts will return to their pre-TCJA levels. To learn more about AMT calculations and avoid an unpleasant surprise when filing taxes, visit CCH AnswerConnect.
Increase in the Earned Income Tax Credit
In 2024, the IRS will increase the maximum amount that can be withheld from worker paychecks for federal taxes in an effort to combat “bracket creep”, when inflation pushes people into higher tax brackets without any increase in real income. This annual adjustment aims to prevent this problem.
IRS has taken steps to expand EITC inclusivity. Minnesota and Vermont have increased their state EITCs, allowing immigrant families who file with Individual Tax Identification Numbers to claim credits more easily. This move follows California, Illinois, Maine, Maryland, Minnesota and New Mexico taking similar actions over time to broaden EITC accessibility.
Some lawmakers have discussed doing away with earnings requirements for EITC altogether, which would increase its size significantly. Unfortunately, such an initiative requires significant legislative work; we’ll keep an eye on this matter to see whether Congress has enough political will to implement such changes.
Increase in the Child Tax Credit
The bill would enable families to use earnings from either the current year or prior years when calculating the tax credit, helping to prevent eligibility drops due to changes like job loss, health conditions or caregiving responsibilities or welcoming a newborn baby – expanding maximum credit amounts as a result and taking effect starting with tax year 2024.
This new law would also expand the refundable portion of the child tax credit so more low-income families receive it, benefitting an estimated 16 million children whose families do not currently qualify for full credits.
Additionally, this bill would adjust for inflation the maximum earnings threshold before their refundable credit begins to phase out and also makes several modifications to it and extends Code Sec 179 deduction limits among other business-friendly provisions – these would all take effect starting with tax year 2024.
