2024 Individual Tax Updates for Federal & CA
As we begin 2024, there are several important tax changes that could impact your finances. Here’s a comprehensive summary of the key individual tax updates for the year, including new credits, deductions, and contributions:
Updated Tax Brackets
The IRS has adjusted tax brackets for inflation. Here are the new tax brackets for 2024:
- Single:
- 10%: $0 – $11,000
- 12%: $11,001 – $44,725
- 22%: $44,726 – $95,375
- 24%: $95,376 – $182,100
- 32%: $182,101 – $231,250
- 35%: $231,251 – $578,100
- 37%: Over $578,100
- Married Filing Jointly:
- 10%: $0 – $22,000
- 12%: $22,001 – $89,450
- 22%: $89,451 – $190,750
- 24%: $190,751 – $364,200
- 32%: $364,201 – $462,500
- 35%: $462,501 – $693,750
- 37%: Over $693,750
- Head of Household:
- 10%: $0 – $15,700
- 12%: $15,701 – $59,850
- 22%: $59,851 – $137,450
- 24%: $137,451 – $209,400
- 32%: $209,401 – $249,850
- 35%: $249,851 – $578,100
- 37%: Over $578,100
Increased Standard Deduction
For 2024, the standard deduction has increased:
- Single: $14,600 (up from $13,850 in 2023)
- Married Filing Jointly: $29,200 (up from $27,700 in 2023)
- Head of Household: $21,400 (up from $20,800 in 2023)
This means more individuals will likely take the standard deduction, reducing taxable income and potentially lowering their tax bills.
Child Tax Credit
The Child Tax Credit remains at $2,000 per qualifying child under age 17. The phase-out thresholds have increased for 2024, so more families may be eligible for the full credit. The phase-out begins at $200,000 for single filers and $400,000 for married couples filing jointly.
Premium Tax Credit (PTC)
The Premium Tax Credit, which helps lower-income individuals and families afford health insurance purchased through the Health Insurance Marketplace, has been extended for 2024. If your household income is between 100% and 400% of the federal poverty line, you may qualify for this credit. The credit is designed to reduce the monthly premiums you pay for health insurance.
Additionally, changes under the American Rescue Plan have made the PTC more accessible for a broader range of individuals and families, especially those with higher incomes.
Tax-Free Disaster Relief Payments (Section 139)
Disaster relief payments made under Section 139 remain tax-free in 2024. These payments, which are typically issued by employers, governments, or charitable organizations, can cover expenses such as temporary housing, repairs, and other disaster-related costs. If you receive relief under Section 139, it will not be included in your taxable income.
Education-Related Tax Items
Several updates affect education-related tax benefits in 2024:
- American Opportunity Tax Credit (AOTC): This credit remains at up to $2,500 per eligible student for the first four years of higher education. It’s partially refundable, meaning you could get a refund even if you don’t owe taxes.
- Lifetime Learning Credit (LLC): The LLC remains available for qualified tuition and related expenses for students enrolled in an eligible educational institution. It’s worth up to $2,000 per tax return (not per student).
- 529 Plan Changes: Starting in 2024, 529 plan beneficiaries can roll over up to $35,000 from a 529 plan into a Roth IRA without incurring penalties, provided certain conditions are met. This offers an opportunity for long-term tax-free growth.
Qualified Business Income Deduction (QBI)
The Qualified Business Income (QBI) deduction allows eligible taxpayers who own pass-through businesses (like S corporations, LLCs, and partnerships) to deduct up to 20% of their qualified business income. This deduction remains in place for 2024, but be sure to review your eligibility and the income thresholds that could affect the amount of the deduction.
Deductions for Excess Business Losses
For 2024, taxpayers with pass-through businesses (sole proprietors, partnerships, S corporations) can continue to deduct up to $500,000 ($250,000 for single filers) of business losses against other types of income. Losses exceeding this threshold may be carried forward to future years.
Clean Energy Credits
Several clean energy credits have been extended and enhanced for 2024 to encourage the adoption of renewable energy technologies. These include:
- Residential Clean Energy Credit: This allows homeowners to claim a tax credit of up to 30% of the cost of installing solar panels, wind turbines, or other renewable energy systems.
- Electric Vehicle (EV) Tax Credit: The credit for purchasing a new or used electric vehicle has been expanded and is now available for more vehicles. For 2024, you can claim up to $7,500 for new EVs and up to $4,000 for used EVs, depending on the vehicle’s price and eligibility.
- Energy Efficient Home Improvement Credit: Homeowners can claim up to 30% of the cost of qualifying home energy improvements, such as energy-efficient windows, insulation, and heating and cooling systems.
Retirement Contribution Limits
The limits for contributions to retirement accounts have increased for 2024:
- 401(k), 403(b), and most 457 plans: $23,000 (up from $22,500 in 2023)
- IRA (Traditional and Roth): $7,000 (up from $6,500 in 2023); $8,000 for those age 50 and older
- SIMPLE IRA: $16,000 (up from $15,500 in 2023)
These increased limits allow individuals to contribute more toward retirement savings, reducing their taxable income for the year.
Capital Gains Tax Adjustments
For 2024, long-term capital gains tax rates remain:
- 0% for taxable income up to $44,625 (single) / $89,250 (married filing jointly)
- 15% for taxable income above the 0% thresholds but below $492,300 (single) / $492,300 (married filing jointly)
- 20% for income above the 15% thresholds
Inflation adjustments may result in paying less tax on capital gains for taxpayers who fall into lower income brackets.
Roth IRA Income Limits
Income limits for contributing to Roth IRAs have increased in 2024:
- Single filers: Eligibility phases out between $153,000 and $168,000
- Married Filing Jointly: Eligibility phases out between $228,000 and $243,000
This gives more individuals the opportunity to contribute to a Roth IRA and enjoy tax-free growth.
2024 Tax Update: Key Changes for California Residents
In addition to federal tax updates, it’s important for California taxpayers to stay informed about changes to state tax laws for 2024. Below is an overview of significant California state tax updates and changes that could impact your 2024 tax filing:
California Income Tax Brackets for 2024
California has adjusted its income tax brackets for inflation in 2024. The state's tax system is progressive, with rates ranging from 1% to 13.3% based on your income. Here are the updated tax brackets for 2024:
- Single Filers:
- 1%: $0 – $10,099
- 2%: $10,100 – $23,949
- 4%: $23,950 – $37,799
- 6%: $37,800 – $52,612
- 8%: $52,613 – $66,780
- 9.3%: $66,781 – $338,639
- 10.3%: $338,640 – $406,364
- 11.3%: $406,365 – $677,275
- 12.3%: $677,276 – $1,022,300
- 13.3%: Over $1,022,300
- Married Filing Jointly:
- 1%: $0 – $20,198
- 2%: $20,199 – $47,898
- 4%: $47,899 – $75,598
- 6%: $75,599 – $105,224
- 8%: $105,225 – $133,560
- 9.3%: $133,561 – $677,278
- 10.3%: $677,279 – $812,728
- 11.3%: $812,729 – $1,354,550
- 12.3%: $1,354,551 – $2,044,600
- 13.3%: Over $2,044,600
These adjustments reflect inflation to ensure that you aren’t pushed into a higher bracket solely due to inflation.
Standard Deduction Increase
California has also increased its standard deduction for 2024 to reflect inflation:
- Single: $5,500 (up from $5,202 in 2023)
- Married Filing Jointly: $11,000 (up from $10,404 in 2023)
This increase in the standard deduction will lower your taxable income, potentially reducing your overall state tax bill.
3. California Child and Dependent Care Expenses Credit
The California Child and Dependent Care Expenses Credit (CDCC) has been expanded in 2024. If you paid for child or dependent care services to enable you to work or look for work, you may be eligible for a tax credit. The credit is based on a sliding scale, and the amount you can claim depends on your income and the cost of care.
- Maximum Credit: The maximum credit for families with incomes under $100,000 can be up to $1,050 for one child and $2,100 for two or more children. The credit gradually phases out as income increases.
California Earned Income Tax Credit (CalEITC) Expansion
California has expanded the CalEITC for 2024. This credit helps lower-income workers and families reduce their state tax liability. The expansion increases the income limits for eligibility and increases the credit amount for certain taxpayers.
- Eligibility: For 2024, individuals earning up to $50,000, including those without children, may be eligible for CalEITC, providing more individuals and families with the opportunity to benefit from the credit.
California Standard Deduction for Seniors and Blind Taxpayers
For taxpayers who are age 65 or older, or those who are blind, California allows an additional standard deduction. For 2024:
- Additional Deduction for Seniors or Blind Taxpayers: $1,500 per taxpayer (up from $1,474 in 2023)
This provides additional tax relief for senior citizens and individuals with disabilities.
California Housing Credit
For 2024, the California Low-Income Housing Credit has been extended to help renters and homeowners who are struggling with housing costs. Taxpayers who qualify for this credit can reduce their California tax liability by up to $1,000, based on their housing costs and income level.
Tax-Free Disaster Relief Payments (California-Specific)
Under California law, disaster relief payments made by FEMA or other qualifying organizations remain tax-free for 2024. If you received any disaster relief payments due to a natural disaster in California, such as wildfire or earthquake relief, these funds will not count as taxable income on your California state return.
Changes to Proposition 19: Property Tax and Inheritance Rules
California voters approved Proposition 19, which made significant changes to property tax laws. For 2024, key provisions include:
- Transfer of Property Between Parents and Children: Under Proposition 19, there are stricter rules regarding the transfer of property between parents and children. Inheritances of properties may now be subject to higher property taxes unless the property is used as the primary residence.
- Property Tax Portability: Homeowners over age 55, disabled persons, and those who are victims of natural disasters can now transfer their property tax base from an old home to a new home anywhere in the state, up to three times (previously, it was limited to specific counties).
Clean Energy Credits (California-Specific)
California continues to incentivize clean energy adoption. There are several state-level credits available for clean energy projects:
- California Solar Initiative: This initiative continues to provide incentives for the installation of solar energy systems, though the amount varies based on program funding.
- Clean Vehicle Rebate Project (CVRP): California residents who purchase or lease an eligible zero-emission vehicle may qualify for a rebate of up to $7,000 (for eligible electric vehicles) to offset the purchase cost. These rebates are available to both individuals and businesses.
California 529 Plan Contributions
California offers a state tax deduction for contributions to California’s 529 College Savings Plan. In 2024, you can deduct contributions of up to $5,000 for single filers and $10,000 for married couples filing jointly, reducing your taxable income on your California return.
Statewide Sales Tax Changes
In 2024, California’s statewide sales tax rate remains at 7.25%, but cities and counties may impose additional local sales taxes. Be sure to check if your local jurisdiction has any changes that affect sales tax rates in your area, as this will impact the amount you pay on goods and services.
