How 2024 Inflation Adjustment Will Affect Your Paycheck

March 15, 2024

This year may come with slightly larger paydays for some Americans. This is because of the new changes to taxable income and deductions that the IRS has put in place in order to help taxpayers with inflation. With the cost of living increasing without wages and salaries doing the same, the new tax adjustments are meant to help consumers deal with higher prices.

As federal income tax brackets are adjusted by 5.4% this year, the change could result in a small paycheck bump, depending on what your withholding is. Since the consumer price index only declined by .1% in November 2023, many Americans are struggling financially.

Here’s everything you need to know about the 2024 tax changes that might affect your bottom line.

Decoding Tax Bracket Creep

The new IRS tax brackets and increased standard deductions have been in effect since January 1st. These adjustments will apply to your next tax return in 2025. It’s standard for the IRS to make changes every year to account for inflation. This is done to help people with the rising costs of living and prevent “bracket creep,” which happens when inflation forces people into a higher income tax bracket without their real income having increased.

So even if you make more money this year, these changes may keep you from falling into a higher tax bracket. You may even find that you have fallen into a lower tax bracket and see an increase in your take-home pay. This becomes even more likely if your pay has stayed the same as in the previous year. For example, if you made $45,000 last year, you would have been in the 22% tax bracket. In 2024, the same $45,000 income places you in the 12% bracket, which means you’ll owe less federal taxes and have less money withdrawn from your checks.

Choose Your Deduction and Know Your Taxable Income

The federal income tax bracket that you fall into determines how much you’ll pay in taxes for the year. Your tax bracket excludes the standard deductions or any itemized tax deductions. Most people with simple taxes claim the standard deduction, which reduces their taxable income. If you receive wages from only one job and receive a W-2, then the standard deduction is usually the best way to maximize your tax refund. But if you are self-employed or have specific deductions you want to claim, then you may elect to itemize your deductions instead.

Once you calculate your taxable income by subtracting either the standard or itemized deductions from your adjusted gross income, then you’ll know which bracket you fall into and how much income tax you should owe. “You always want to keep a running total in your mind of how your income is changing,” says certified financial planner Roger Stinnett. “Because it’s complex.”

2024 Tax Brackets and Standard Deductions

For the 2024 tax year, both the federal income tax brackets and the standard deduction were raised. These amounts will apply to your 2024 taxes, which you won’t file until 2025.

For those married filing jointly with a combined income between $23, 201 and $94,300, the estimated taxes owed would be $2,320. For a single taxpayer with an income between $11,601 and $47,150, they would owe $1,160, plus ten percent of any amount over $11,600.

The standard tax deduction for 2024 for those who file single will be $14,600, which is a $750 increase from 2023. For those married and filing together, the standard deduction will be $29,200, which is a $1,500 increase from last year.

Watch Your Withholdings

The federal and state withholdings on your paycheck will determine whether or not you’ll owe taxes at the end of the year or receive a refund from overpaying throughout the year. Regardless of your changes to your income, you may be placed in a lower or higher tax bracket because of the new adjustments.

It will be important to keep track of any life changes that may affect your filing situation, such as marriage, divorce, the birth or adoption of a child, retirement, buying a home, having to file for bankruptcy, and more. If you know your situation has changed since the previous year, it will be important to adjust your withholding by filing a new W-4 with your employer. If you had a large refund or owed a large amount last year, then this is a sign to check your withholding.

Other 2024 Tax Changes to Know

The IRS also announced higher contribution limits for tax-deferred retirement plans for the 2024 tax year. Americans may now contribute up to $23,000 into their 401(k), 403(b) and most 457 plans, which is $500 more than in 2023. The limit on annual IRA contributions also increases to $7,000, up from $6,500 the previous year. For those that save for added healthcare costs, the FSA contribution limit has also increased to $3,200, which is up from $3,050 for 2023. And if you collect Social Security, then you’ll receive a 3.2% cost-of-living adjustment in 2024.

Insureyouknow.org

The purpose of these tax changes is to help taxpayers feel the pain of inflation less. If you’ve noticed a higher paycheck, then different withholdings may be why. Figuring out whether or not you’ll be falling into a different tax bracket this year will help you determine if you’ll be benefiting from the new changes. Insureyouknow.org can help you store all of your financial information and tax preparation documents so that when it comes time to file, the process will be as painless as paying less taxes in 2025.

Sign up

Individual     Insurance Agent

Select Plan
$14.95 Annual    $26.95 Three Years

Which is Best: Health Savings Account or Flexible Spending Account?

February 1, 2024

While a health savings account (HSA) and a flexible savings account (FSA) both help you to set money aside for health care costs, they are not the same. Both accounts are often offered by employers, but it is possible to open an HSA independently as long as you have a HSA-eligible health plan in place. FSAs however are strictly employer-based and can only be contributed to if your employer offers them to you. Here are six key differences to know between HSAs and FSAs.

  1. An HSA Belongs to You, Not Your Employer

Whether or not you opened up a HSA through your employer-offered insurance, the funds within your HSA belong to you forever. You may even use your HSA to cover health insurance costs if you leave your current job. On the other hand, FSA funds belong to your company, and when you leave them, you forfeit your FSA.

This is not to say a FSA can’t be advantageous, as long as you intend to stay with your current employer. “The FSA basically works with any kind of health insurance plan,” says Roy Ramthun, president of HSA Consulting Services. “So from that perspective, the ‘flexible’ in the name is pretty good.”

  1. Both Accounts Have Contribution Limits

Each year, the IRS determines maximum annual amounts that can be contributed to both HSAs and FSAs. Employers may also apply their own limits to their employee FSAs. For 2024, the IRS individual contribution limits for HSAs will be $4,150, while the family limit will be twice that. In 2024, the maximum contribution for FSAs will be $3,200. While a HSA has a higher contribution limit, your employer may be contributing to your FSA for you, which may allow you to contribute more of your earnings into your own HSA.

  1. HSA Funds Carry Over

With an HSA, you may carry over unused funds from year-to-year indefinitely. This is helpful when you have more in your account than you can use before the year’s end. With the HSA, your funds won’t go wasted. This is why it is a great way to save up for unexpected health costs down the road.

Alternatively, FSA funds must be used before the year is over, or you’ll forgo the existing funds when the calendar year starts over. Some employers may allow you to carry over part of the funds or provide you with a grace period to use your funds, which is generally two and a half months. Since FSAs are offered through your employer, it will be important to inform yourself of their policies around the account.

  1. FSAs are More Accessible at the Beginning of Each Year

While your FSA funds don’t rollover, if you or your employer plan to contribute your entire limit at the beginning of the year, then that entire amount is available to you immediately. HSA funds accumulate over the year, which means that if you need access to more coverage midyear, you may not have enough money in your HSA to pay your medical bills. The upside to this is that you should be able to reimburse yourself for previous medical expenses from your HSA once those funds become available.

  1. The HSA Can be an Investment Strategy

Unlike an FSA, the HSA can gain interest over time. Couple this with the fact that your funds carry over year to year, and the HSA offers the potential for growing quite a sizable nest egg for potential health care coverage. According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2023 may need up to $315,000 saved just to cover health care expenses in retirement, while a single individual will need approximately $157,500.

  1. At 65, the HSA Can Act as a 401K or IRA

Before the age of 65, you will be subject to a 20% penalty if you use your HSA or FSA funds for anything other than medical expenses. But once you’re 65 or older, that fee is waived, which means that those HSA funds are only subject to income taxes no matter how you use them. While you avoid the 20% penalty over the age of 65 with a FSA as well, those funds can still only be used for health care coverage.

Insureyouknow.org

Both HSAs and FSAs can prove to be valuable parts of a health coverage plan. Whether or not your employer offers a FSA to you in addition to health insurance coverage for you and your dependents will of course factor into your decision making about whether or not an added HSA will be necessary. Insureyouknow.org can help you store all of your financial and medical information in one place so that you can stay organized and make the best decisions when planning for your family’s health coverage.

Sign up

Individual     Insurance Agent

Select Plan
$14.95 Annual    $26.95 Three Years

Drug Shortages Amid the “Tripledemic”

December 14, 2022

‘Tis the season to be jolly, but your cheerfulness may be challenged by drug shortages across parts of the country, with the “tripledemic”—cases of flu, respiratory syncytial virus (RSV), and COVID-19—driving high demand for medications. These seasonal respiratory illnesses have emerged earlier than usual and have spread quickly and simultaneously across the country.

Healthcare Concerns

Record levels of illnesses have caused a spike in the demand for amoxicillin, resulting in an acute shortage of the antibiotic, which is widely used for the treatment of bacterial widespread upper and lower respiratory infections.

Physicians are facing shortages of critical drugs used during surgery. Shortages of key anesthesia medications used for most procedures and surgeries, and critical pain medications such as fentanyl are forcing doctors to use alternatives that may not be first-line or the optimal treatment for conditions or scenarios, or in the best interests of patients.

FDA and Pharma Companies’ Responses

According to the Federal Drug Administration (FDA), 123 of 184 listed drugs are currently in shortage. Officials say one of the reasons for the shortages is that drugs are manufactured based on orders from the previous year, meaning pharmaceutical companies don’t keep an inventory on hand year after year. Some manufacturers report that this year’s orders didn’t anticipate the heavy season for respiratory illnesses.

The FDA is working closely with numerous manufacturers and others in the supply chain to understand, mitigate, and prevent or reduce the impact of intermittent or reduced availability of certain products, including several over-the-counter (OTC) medicines used for symptomatic relief, such as the children’s medications liquid acetaminophen and ibuprofen. The FDA also has taken steps to help relieve the shortage by putting out guidance to pharmacists to make liquid amoxicillin for children from pill versions. (Amoxicillin pills for adults are not in short supply.)

Drug Manufacturing Problems

Drug manufacturers are having problems keeping up with their needs, including manufacturing and quality problems, delays, and discontinuations. Additional factors causing drug shortages are difficulties in acquiring raw materials, manufacturing problems, regulatory issues, business decisions, and disturbances within the supply chain.

Patients’ Actions

Throughout the country, shortages of certain medications and over-the-counter (OTC) pain relievers are leaving people on the hunt for a pharmacy or a grocery store to fill prescriptions and OTC products. Tamiflu, Adderall, and as already mentioned, even the standard antibiotic amoxicillin in liquid form, is getting hard to find.

If you can’t find a recommended medication readily available, you may need to call multiple pharmacies, look for a generic version, ask your doctor for an alternative prescription, or ask your pharmacist how to use an adult version of a medication for a child.

Brigid Groves, a pharmacist and the senior director for practice and professional affairs at the American Pharmacists Association, says, “The most important thing families can do for a sick loved one is to get them tested. Most doctor’s offices and some pharmacy clinics can do rapid tests to help determine whether your symptoms are coming from a viral or bacterial illness.”

InsureYouKnow.org

If you face challenges finding medications during the tripledemic, persevere in your hunt to fill a prescription or to find a substitute recommended by your healthcare professional. Document your health insurance and flexible spending account activities, lists of prescribed and OTC medications, where you found them, and when you’ll need to find and fill them again at insureyouknow.org

Sign up

Individual     Insurance Agent

Select Plan
$14.95 Annual    $26.95 Three Years