39.6 Percent Federal Tax Rate
A tax hike for the current year’s taxes is on the horizon, and it won’t be a surprise if the new legislation passes by the end of the calendar year. Similar to the Tax Cuts and Jobs Act of 2017 where the legislation was passed by the Congress in December and the changes were immediate a month later, it’s highly likely that the same outcome is coming for the 2024 tax season.
Biden Administration’s proposed tax bill features something that didn’t happen with the 2017 tax legislation change, though. There will be a new tax bracket for those that are earning more than $400,000 with a tax rate of 39.6 percent. This eliminates the current 37 percent bracket as the highest marginal tax rate that can apply to a taxpayer.
How the 39.6 percent bracket affects other taxpayers
A tax hike is always seen as something bad that’s going to affect all taxpayers. However, this isn’t going to be the case for the foreseeable future. As President Biden proclaimed that anybody making less than $400,000 won’t be affected by tax increases, you have nothing to worry about, even if your income is way above the median household income.
If you’re making over $400,000, though, it isn’t so clear. Considering that many of the tax breaks given to high income individuals were shortened by reducing the income thresholds and phase out limits, you might pay more taxes in addition to a higher marginal tax rate.
In conclusion, just because there is a new tax bracket with a higher tax rate than currently doesn’t mean that you will pay a higher tax. It comes down to whether or not you’re in that bracket. If you’re someone making as much as $400,000, you are most likely to keep a similar tax bill.
When is the official tax law change for 2024?
It’s a question of if now rather than when. If passed in the upcoming weeks, it is certain that the changes are going to find their places in the tax code of the United States immediately. That said, you will see the changes brought with the $3.5 trillion tax bill as soon as next year, which will affect your current year’s income. If you’re a highly compensated employee that’s earning over $400,000 or your taxable income is around that, we highly suggest paying attention to your estimated payments or withholdings, whichever applies. Paying more in taxes gradually won’t clog your cash flow as much as paying a large, unexpected tax bill at once.
