As the new year kicks off, some workers could see a slightly bigger paycheck due to tax bracket changes from the IRS.
The IRS in November unveiled the federal income tax brackets for 2024, with earnings thresholds for each tier adjusting by about 5.4% higher for inflation.
While it's lower than the tax bracket changes for 2023, "it's still a pretty handsome increase," said certified financial planner Roger Stinnett, managing director of wealth planning for First Foundation Advisors in Irvine, California.
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If your wages are similar to last year, the 2024 tax bracket adjustment could result in a small paycheck increase, depending on your withholding, experts say.
Of course, prolonged higher costs can chip away at tax savings.
Annual inflation declined slightly in November, but many Americans are still feeling the pinch of elevated prices for housing, motor vehicle insurance and other day-to-day expenses.
Keep a 'running total' of your income
"You always want to keep a running total in your mind of how your income is changing, because it's complex," said Stinnett, who is also a certified public accountant.
The federal income tax brackets show how much you owe on each portion of your "taxable income," which is calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
For 2024, the standard deduction also increased for inflation, rising to $14,600 for single filers, up from $13,850 in 2023. Married couples filing jointly may claim $29,200, up from $27,700. That change could reduce taxable income for some filers.
Check your paycheck withholding
Your federal and state paycheck withholdings affect how much taxes you pay throughout the year. You can expect a refund when you've overpaid or a tax bill when you haven't paid enough.
Even if your paycheck increased in 2024, "new tax changes could still place you in a lower or higher bracket," warned CFP Ashton Lawrence, director at Mariner Wealth Advisors in Greenville, South Carolina.
It's important to keep track of tax law and life changes that may affect your situation and adjust your paycheck withholding via Form W-4 with your employer as needed, he said.
Life changes that can affect your taxes may include marriage, divorce, the birth or adoption of a child, retirement, buying a home, filing for bankruptcy and more, according to the IRS.
One "quick check" could be last year's tax return, Stinnett said. If you had a large refund or owed a sizable balance, that may signal it's time to review your withholding.
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