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It’s that time of the year again to find out which of the newest IRS Tax Adjustment changes might impact your employee benefits and tax credit eligibility. This information could be instrumental in updating your company’s compensation strategy.

In a recent announcement made by the Internal Revenue Service (IRS) in early November, significant annual inflation adjustments were unveiled for over 60 tax provisions for the tax year 2024. These adjustments encompass tax rate schedules and various other tax modifications.

Overview of 2024 Tax Adjustments

Primarily affecting income tax returns filed in 2025, the alterations in tax provisions for 2024 are crucial for taxpayers. The most noteworthy adjustments pertain to cost-of-living changes in several tax limits, covering employee benefit plans, small businesses, and the premium tax credit.

Key Highlights for Taxpayers

Upon exploring the comprehensive list and detailed news release available on the IRS website, several vital changes come to the forefront, particularly concerning employee benefit plans:

Health Flexible Spending Accounts (FSAs)

For the tax year 2024, the cap on employee salary reduction contributions to health FSAs will be set at $3,200, marking an increase from the previous limit of $3,050. Additionally, if permitted by the cafeteria plan, health FSA carryovers to the 2025 plan will reach a maximum of $640, previously at $610.

Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs)

QSEHRAs for 2024 reveal significant adjustments, with self-only coverage reaching a maximum of $6,150 and family coverage rising to $12,450. This demonstrates a considerable increase from the prior figures of $5,850 and $11,800, respectively.

Dependent Care Assistance Programs (DCAPs)

Despite adjustments in various areas, the maximum amount of DCAP benefits excluded from income remains static at $5,000/$2,500 for the tax year 2024. There are no cost-of-living modifications anticipated for future years unless extended or altered by Congress.

Premium Tax Credit Limitations

Starting in 2024, there are specific limitations on tax for excess advance credit payments, which vary based on household income brackets:

  • For unmarried individuals not including surviving spouses or heads of households, household income below 200% of the Federal Poverty Line (FPL) will have a limit of $375. This limit rises to $950 for income between 200% and less than 300% of FPL and to $1,575 for income between 300% and less than 400% of FPL.
  • For all other taxpayers, the limitations are set at $750 for income below 200% of FPL, $1,900 for income between 200% and less than 300% of FPL, and $3,150 for income between 300% and less than 400% of FPL.

Conclusion: Implications for Taxpayers

The annual adjustments announced by the IRS for tax year 2024 carry considerable significance for taxpayers, specifically impacting their benefits, health coverage, and tax credit eligibility. These modifications underscore the importance of staying informed about evolving tax regulations and understanding how they may influence personal finances. For a comprehensive understanding of these changes, taxpayers are encouraged to visit the IRS website for detailed information and guidance.

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