2024 Tax and Financial Update

With three major pieces of tax legislation passed in the last four years, we enter 2024 with more nuances, more inflation adjustments, more expiring tax breaks, and more rules to follow.

Here are the highlights. To see all the details, please see our Key Financial Data summary. 

Tax brackets, deductions increased

In 2024 the tax rates will be the same as in 2023. However, the tax brackets that determine how much income is taxed at each rate are indexed to inflation. This means more income will be taxed in lower tax brackets than last year.

The tax rates on capital gains and dividends are also indexed for inflation, so while the 2024 tax rates are the same as in 2023, the level of income that falls in each bracket increased. There are still seven federal income tax rates, which were set by the 2017 Tax Cut and Job Act: 10%, 12%, 22%, 24%, 32%, 35% and 37%. The IRS increased its tax brackets by about 5.4% for each type of tax filer for 2024. The 2024 limits come after the IRS last year expanded its tax brackets by a historically large 7%, reflecting last year’s high inflation.

For 2024, more income could fall into lower tax brackets because of inflation adjustments. For instance, in the 2023 tax year single tax filers will pay 10% on their first $11,000 of taxable income. In 2024, the first $11,600 of taxable income will fall into the 10% tax bracket, which means $600 of additional income will be taxed at 10%, instead of 12% in the current tax year.

For 2024, the standard deduction will increase between $750 and $1,500 from the previous year.


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Capital gains and dividends

Tax rates on long-term capital gains and qualified dividends generally are unchanged, at 0%, 15% and 20%, but the brackets for the rates will change. For 2024, the 15% rate applies to capital gains or dividends that push taxable income above $94,050 for joint returns and surviving spouses, $63,000 for heads of household, $47,025 for single and married-filing-separately taxpayers and $3,150 for estates and trusts.

The 20% rate applies to long-term capital gains or qualified dividends that propel taxable income past $583,750 for joint filers and surviving spouses, $551,350 for heads of household, $518,900 for single filers, $291,850 for married-filing-separately filers and $15,450 for estates and trusts.

Tax on net investment income

The net investment income tax (NIIT) of 3.8 is levied on the lesser of net investment income or modified adjusted gross income (MAGI) over $200,000 for single or $250,000 for married filing jointly. These amounts are not adjusted for inflation, so they remain unchanged from 2023. Net investment income includes taxable interest, ordinary dividends, capital gains and other income categories, and some expenses can be subtracted.

Retirement plan contribution limits increased

The total amount that employers and employees combined can contribute to a 401(k) or similar defined-contribution plan rises to $69,000 in 2024, up from $66,000 in 2023. The maximum annual employee contribution increases from $22,500 in 2023 to $23,000 in 2024. The catch-up contribution for people aged 50 and older remains at $7,500 in 2024. The limit on how much compensation can be counted under a qualified plan rose to $340,000, from $330,000 in 2023. Meanwhile, the basic annual benefit limit for defined benefit increased to $275,000 from $265,000 in 2023. As a reminder, RMDs do not start until age 73 (per SECURE Act 2.0).


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Social Security

Social Security beneficiaries will receive a 3.2% cost of living adjustment to their benefits, an increase from the 8.7% cost of living adjustment from 2023. The estimated maximum monthly benefit is $3,822 in 2024, up slightly from $3,627 in 2023.

Social Security benefits will continue to be taxable depending on your overall income. The income thresholds at which benefits start to be taxed depends on your “provisional” income, which is also known as “combined” income. In 2024, if your provisional income is under $25,000 ($32,000 for joint filers), there is no tax on your Social Security benefits. If your provisional income is between $25,000 and $34,000 ($32,000-$44,000 for joint filers), then 50% of your Social Security benefits are taxable. If your provisional income is above $34,000 ($44,000 for joint filers), then 85% of your Social Security benefits are taxable.

Medicare surcharges

In 2024 the income brackets used to determine Medicare premium surcharges for high-income retirees will be indexed to inflation. As a result, some retirees may experience an increase in their Medicare surcharge costs next year.


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Estate tax and gift tax

The exclusion from estate, gift, and generation-skipping transfer (GST) rose from $12,920,000 in 2023 to $13,610,000 in 2024. The top federal estate-tax rate remains 40%. These high lifetime exemption amounts are due to “sunset” at the end of 2025, at which time they will be cut approximately in half.

The value of gifts one person can give to another without reporting it on a gift tax return increases to $18,000 in 2024 from $17,000 in 2023. Unlimited payments for tuition and medical expenses are permitted.

How to navigate the changes

Changes to tax laws, estate planning, retirement planning and investment planning are constantly happening. It pays to work with a financial advisor who you can trust to look after your best interest. At Blankinship & Foster, our Wealth Management service includes in-depth and proactive retirement and tax planning, specific to your unique situation, goals, and objectives. Contact us to learn more about how we can help bring clarity, confidence, and direction for your financial future.

Disclosure: The opinions expressed within this blog post are as of the date of publication and are provided for informational purposes only. Content will not be updated after publication and should not be considered current after the publication date. All opinions are subject to change without notice, and due to changes in the market or economic conditions may not necessarily come to pass. Nothing contained herein should be construed as a comprehensive statement of the matters discussed, considered investment, financial, legal, or tax advice, or a recommendation to buy or sell any securities, and no investment decision should be made based solely on any information provided herein. Links to third party content are included for convenience only, we do not endorse, sponsor, or recommend any of the third parties or their websites and do not guarantee the adequacy of information contained within their websites.

About Jon Beyrer

Jon Beyrer, EA, CFP® is a partner of Blankinship & Foster LLC and is the firm’s Chief Compliance Officer. As a lead advisor, he focuses on helping families achieve their goals with sound wealth planning. In the community, Jon serves on several boards and is co-founder of the Professional Alliance for Children, a legal/financial charity for families of ill children. He has been quoted in The Wall Street Journal, The New York Times, and the Journal of Financial Planning. Jon lives in San Diego with his family.

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