Every year, the IRS adjusts various thresholds and tax brackets for inflation. Family Law Software is fully updated and ready for the new tax year:
Every year, the IRS adjusts various thresholds and tax brackets for inflation. Family Law Software is ready for the new tax year.
- All new case files will automatically use 2024 as the current year for income tax calculations, support purposes, and financial projections.
- In the Cloud software, existing case files will automatically also update to use 2024 as the current year. In the Desktop software, you will see an option to update when you next open the file.
In the Cloud software, if you would like to continue to use 2023 as the current year, you can set the year back to 2023. The way to do this is to go to Settings > Assumptions > “Start Year,” and enter “2023.”
You can also prevent the software from updating to 2024 the next time the file opens, by finding the checkbox at that location labeled “Automatically update Start Year,” and clearing it.
This blog will discuss the tax changes you will see in 2024.
Tax Bracket Adjustments
Due to relatively high inflation, bracket adjustments are higher than they have been in previous years.
The impact of this is that, for a given level of income, taxes will be lower.
For example, a single person with a gross income of $100,000 in both 2023 and 2024, and no other tax items, will see about a $419 reduction in federal taxes in 2024.
In states that use net income for child and spousal support calculations, child support payors will pay less tax and thus have slightly more money available for support purposes.
As a result, if income does not change, the child support amount will be slightly higher.
In 2024, the top tax rate remains at 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly). Other updated rates for individuals filing as single:
- 35% for incomes over $243,725 ($487,450 for married couples filing jointly)
- 32% for incomes over $191,950 ($383,900 for married couples filing jointly)
- 24% for incomes over $100,525 ($201,050 for married couples filing jointly)
- 22% for incomes over $47,150 ($94,300 for married couples filing jointly)
- 12% for incomes over $11,600 ($23,200 for married couples filing jointly)
The Standard Deduction
The standard deduction is a fixed amount that can be subtracted from total income to reduce the taxable income normally subjected to taxation.
The standard deduction is based on filing status, age, and whether the taxpayer is legally blind or is claimed as another filer’s dependent.
As an alternative, the IRS allows taxpayers to itemize deductions in lieu of claiming the standard deduction.
Itemized deductions are a list of eligible expenses whose total is, for some taxpayers, higher than the fixed standard deduction.
Itemized deductions include state and local taxes, including property taxes (limited to $10,000; $5,000 if married filing a separate return), mortgage interest, and charitable contributions.
Taxpayers may claim the standard deduction or the total of itemized deductions, whichever method benefits them the most.
The standard deduction for single taxpayers and married filing separately has risen to $14,600 for 2024, an increase of $750 from 2023.
For married couples who are filing jointly for the tax year of 2024, the standard deduction rises to $29,200, an increase of $1,500 from last year.
As for head of household filers, the standard deduction will be $21,900 for the tax year 2024, an increase of $1,100 from the 2023 tax year.
Exemptions
The 2017 tax act eliminated the deduction for exemptions starting in 2018. However, the act expires (we say “sunsets”) in 2026, so tax exemptions are scheduled to return then. (Unless Congress acts before 2026, many other provisions will return to 2017 law in 2026 as well.)
Earned Income Tax Credit
The Earned Income Tax Credit is a refundable tax credit that helps low-income to moderate-income families at tax time.
Working families and individuals may qualify for this tax credit.
The maximum Earned Income Tax Credit for a family of 3 or more children in 2024 has increased to $7,830.
A typical family, with a person filing as head of household, with an income of $20,000 in both 2023 and 2024, with 2 children qualifying for the Earned Income Tax Credit, will see an increase in the 2024 refund of $509.
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) is actually an entire parallel tax system.
The AMT was originally created to prevent high-income taxpayers from reducing their tax liability “too much” through deductions.
Tax is always computed under both systems, and the taxpayer pays whichever tax is higher: tax under the regular system, or tax calculated under the alternative minimum tax system.
The Alternative Minimum Tax exemption amount for 2024 is $85,700 and begins to phase out at $609,350 ($133,300 for married couples filing jointly for whom the exemption begins to phase out at $1,218,700).
In Family Law Software under Reports> View Edit Taxes, if the tax calculated under the regular system is higher, then the tax computed under the AMT system remains invisible.
However, if the tax calculated under the AMT system is higher, the distance from the regular tax to the Alternative Minimum Tax is labeled on the tax report as “the Alternative Minimum Tax.”
Family Law Software is your up-to-date solution for complete and accurate tax calculations, no matter how simple or how complex the case.
Helpful Resources:
FLS Blog “Tax Benefits Relating to Children”: https://blog.familylawsoftware.com/2023/04/04/tax-benefits-relating-to-children/
FLS Power Webinar on Data Entry: https://www.youtube.com/watch?v=7YTZJJmvRpQ
IRS Tax Inflation Adjustments for Tax Year 2024, https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024#:~:text=Marginal%20rates%3A%20For%20tax%20year,for%20married%20couples%20filing%20jointly).&text=The%20lowest%20rate%20is%2010,for%20married%20couples%20filing%20jointly).