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Discover the must-know tax-planning figures for employees in 2024. Stay informed and optimize your financial strategies with essential tax insights for the current year.
Taxes can be overwhelming, but planning ahead in January and February is crucial for understanding the federal tax-related numbers that will impact your income in 2024. The IRS and Social Security Administration adjust various key figures annually due to inflation, making it challenging to identify the ones relevant to you.
While some adjustments, like the federal estate-tax exemption for the super-wealthy ($13.61 million for unmarried and $27.22 million for married taxpayers in 2024), may not apply to everyone, there are other important changes that affect employees, paychecks, and financial planning. For instance, the income threshold defining a "highly compensated employee" is $155,000 in 2024, influencing eligibility for employee stock purchase plans (ESPPs) and 401(k) plan non-discrimination testing.
It's essential to stay informed about these adjustments to make informed financial decisions throughout the year. For further details and official resources, refer to the IRS website and Social Security Administration updates.
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The Social Security tax, set at 6.2%, is applied to your earnings up to a yearly limit determined by the Social Security Administration. Anything you earn beyond this limit isn't subject to the Social Security tax. Unlike Social Security, the Medicare tax has no upper limit, with rates of either 1.45% or 2.35%, depending on your income level.
In 2024, the Social Security wage cap is set at $168,600, an increase from $160,200 in 2023. This means that if your income surpasses this cap, the maximum Social Security withholding for the year is $10,453.20. Once you reach this cap and complete the withholding, you'll notice a 6.2% increase in your paycheck since any additional earnings beyond this point are not subject to Social Security withholding.
As an employee, your employer deducts taxes from your paycheck based on your Form W-4 details. It's advisable to review and potentially update your Form W-4 whenever there are changes in your finances, personal life, or job situation. This helps ensure that your withholding aligns with your current circumstances, as recommended by the IRS.
Here's a table displaying federal income-tax brackets and rates. It helps you grasp how extra income would be taxed at your marginal tax rate, which is the percentage of tax you pay for each additional dollar of income within your current tax bracket. Understanding this rate ensures that your W-4 withholding aligns with your total tax liability for 2024. Knowing your effective or average tax rate helps prevent surprises regarding additional income.
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When you receive extra income like a cash bonus or earnings from nonqualified stock options, it's considered supplemental wage income. For federal income-tax withholding, companies often use a flat rate of 22% (37% for yearly income over $1 million) instead of your W-4 rate.
Referencing the table above, you might notice that the 22% withholding rate may not cover all taxes owed on supplemental wage income based on your marginal tax-bracket rate. If so, you'll need to set aside extra funds for your 2024 tax return, pay estimated taxes throughout 2024, or promptly adjust your W-4 to cover the gap. For uncertain situations, consult with a qualified tax professional like a CPA or Enrolled Agent.
Opting for estimated taxes? Keep in mind that the due dates for quarterly payments in the 2024 tax year are April 15, June 17, and September 16 of 2024, and January 15 of 2025. Note that the IRS may adjust these dates for taxpayers in areas affected by natural disasters, as indicated on the IRS website under Tax Relief in Disaster Situations.
In 2024, you have the option to set aside a maximum of $23,000 from your salary for qualified retirement plans, like a 401(k) or 403(b) if you work for a nonprofit, school, or government agency. This is an increase from the $22,500 limit in 2023.
The overall limit for contributions to defined contribution retirement plans, which includes any additional contributions made by your employer, has gone up to $69,000 in 2024, marking a $3,000 rise from the previous year. If you're 50 or older, you can contribute an extra $7,500 annually.
The maximum amount of compensation income considered for qualified deferrals has increased to $345,000 in 2024. If you wish to make changes to your compensation deferral election, it's advisable to consult your company's 401(k) plan administrator for guidance.
If you're interested in deferring more income, explore the possibility of your company offering a nonqualified deferred compensation plan, often referred to as an excess 401(k) plan. To learn more about these plans, you can visit the website myNQDC.com.
In 2024, the pre-tax contribution limits for health savings accounts (HSAs) are being adjusted due to inflation, providing an opportunity for individuals with high-deductible health plans.
The IRS has increased the annual contribution limits for HSAs. For those with self-only coverage, the limit is now $4,150 in 2024, up by $300 from the previous year, representing a 7.8% increase. For those with family coverage, the limit is $8,300 in 2024, compared to $7,750 in 2023, marking a 7.1% increase. The HSA catch-up contribution limit for individuals aged 55 or older remains at $1,000.
With more companies facilitating pre-tax payroll deductions for HSAs and matching employee contributions, these adjustments could have a significant impact for many people, especially considering the continuous rise in healthcare costs.
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This post is just for informational purposes and is not meant to be legal, business, or tax advice. Regarding the matters discussed in this post, each individual should consult his or her own attorney, business advisor, or tax advisor. Vincere accepts no responsibility for actions taken in reliance on the information contained in this document.
For business tax planning articles, our tax resources provides valuable insights into how you can reduce your tax liability now, and in the future.
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