It's a new year, and monitoring modifications to the Social Security Administration (SSA) and Internal Revenue Service's (IRS) guidelines is crucial for successful 2024 paycheck planning. Changes to these guidelines can affect your paycheck in a beneficial or disadvantageous way, so understanding these updates can help you avoid new pitfalls while taking advantage of emerging benefits.
Preparing for changes and knowing what's coming puts you one step ahead. Below, let's review some changes and figures to consider in this year's paycheck planning.
Defined Contribution Plan Limits
While 2024 won't see the $2,000 increase in 401(k)contribution limits that 2022-23 saw, the contribution limit for this year will increase from $22,500 to $23,000 for 401(k) plans, allowing workers to contribute an additional $500 this year to their 401(k), 403(b), most 457 plans, and the Thrift Savings plan that's for federal employees. Although this is less significant than last year's hike, the increase will help employees reach retirement goals.
The catch-up contribution limit is $7,500 for people 50 and older, and these contribution plans will remain at this limit for 2024.
The total employer plus employee contribution limit for 2024 increases from $66,000 in 2023 to $69,000 in 2024, marking a $3,000 increase.
Individual Retirement Account (IRA) Limits
IRAs will also see an increase of $500 to IRA contributions, increasing their 2023 limit of $6,500 to $7,000 for 2024. Similarly, this year, the IRA catch-up contribution limit will remain $1,000.
Defined Benefit Plan Limits
Defined benefit plans are specific pension plans that provide employees with a set paycheck after retirement and also have limits. In 2024, defined benefit plan limits will increase from $265,000 to $275,000, allowing companies to provide even more robust defined benefit plans for their employees.
Social Security
Social Security and Supplemental Security Income (SSI) benefits will experience a 3.2% increase in 2024. For individuals below the full retirement age, the earnings limits will rise to $22,320 this year, with a deduction of $1 for every $2 earned over this limit. Those reaching full retirement age will have an earnings limit of $59,520, and a deduction of $1 for every $3 earned over the limit will apply until the month they reach full retirement age.
Social Security Tax
The Social Security tax maximum, or the Social Security tax, will increase to $168,600 in 2024, increasing from $160,200 in 2023, meaning that anything above this maximum will not be subject to additional Social Security tax.
Medicare
In 2024, if you earned more than $103,000 or $206,000 as a joint filer, you must pay an additional medicare Part B and Part D tax.
Standard Deductions
The standard deduction for 2024 will increase from $13,850 in 2023 for individual filers and married but filing separately to $14,600. The standard deduction for married couples filing jointly is raised to $29,200 from $27,700 and $20,800 to $21,900 for head-of-household filers.
Flexible Spending Accounts
This year, there's a $150 increase in flexible spending accounts, raising the contribution limit from $3,050 to $3,200 for 2024. These contributions aren't subject to federal income, Medicare, or Social Security tax.
Adoption Credit
The adoption credit per eligible child is increasing from $15,950 to $16,810 in 2024, an increase of $860 from the previous year.
Tax codes change every year, so paying attention to how these will affect you and your financial planning is essential. Doing so can save you money and better prepare you for the future. Working with a tax accountant can be beneficial in keeping up-to-date with changes in tax laws and how they affect you financially.