Important Tax Information for Your 2024 Tax Return
What is a Tax Credit?
A tax credit is a dollar-for-dollar reduction of a taxpayer’s bill. This can reduce the taxes owed or, in some cases, increase a refund amount.
Tax credits are offered on both the federal and state levels to incentivize certain actions, such as purchasing an electric vehicle or to offset the cost of certain expenses (e.g., raising or adopting a child). To qualify, taxpayers usually must meet a strict set of criteria relevant to that credit.
A tax credit differs from a tax deduction. Deductions lower your taxable income, whereas tax credits lower how much you owe in taxes.
How do tax credits work?
Tax credits come in three categories: nonrefundable, refundable and partially refundable
Nonrefundable tax credit
Nonrefundable tax credits reduce your tax liability by the corresponding credit amount. In other words, if you qualify for a $500 nonrefundable credit, your taxes owed are reduced by $500. Once you zero out your taxes owed, though, you won’t get any overage of the unused tax credit back as a refund.
Refundable tax credit
Refundable tax credits can not only reduce your taxes owed but also result in a refund. If you owe fewer taxes than the credit amount, the overage will be returned to you in the form of a refund after you file your tax return.
Partially refundable tax credit
Partially refundable credits can lower your tax liability by the corresponding credit amount, and if your tax bill is lower than the credit amount, you may be able to get a partial refund for any remaining overage — but only up to a certain amount.
Child Tax Credit (CTC) for 2024:
The Child Tax Credit helps families with children under the age of 17.
- Maximum Credit: $2,000 per qualifying child
- Refundable Portion: Up to $1,700 per child (this is the portion that may be refunded if it exceeds your tax liability)
- Income Limits for Full Credit:
- Single Filers: Phaseout begins at $200,000
- Married Filing Jointly: Phaseout begins at $400,000
Retirement Contributions for 2024:
New Super Catch-Up Contributions for Ages 60 to 63
New for 2025: 401(k) contribution limits for people ages 60 to 63 are super-sized. If you are 60, 61, 62 or 63 in 2025, you can contribute an additional $11,250 to an employer-based 401(k), 403(b), 457 or (most) governmental thrift programs for a total contribution of $34,750.
- 2025 super catch-up contribution for ages 60, 61, 62 and 63: $11,250 and total contribution limit of $34,750
A Roth IRA conversion (sometimes called a backdoor Roth IRA when done indirectly) allows you to move funds from a Traditional IRA (or another pre-tax retirement account) into a Roth IRA, paying income taxes on the converted amount in the year of conversion.
Health Savings Accounts (HSA) Deductions for 2024:
- These limits apply to contributions made to an HSA (Health Savings Account) by an individual, not employer contributions (although employer contributions count toward the total limit).
- Eligibility: To qualify for an HSA, you must have a high-deductible health plan (HDHP) and not be enrolled in other health insurance or covered by Medicare.
HSA Rollover Rules
The key benefit of an HSA is that funds roll over from year to year. This means that unused funds in your HSA are not forfeited at the end of the year, unlike Flexible Spending Accounts (FSAs). Here’s how the rollover works:
- No “Use-It-or-Lose-It” Rule: HSA funds carry over indefinitely.
- Growth of Funds: In addition to being rolled over, the funds in your HSA can be invested and grow tax-free. You can invest your HSA funds in stocks, bonds, or mutual funds (depending on your HSA provider).
- Tax-Free Withdrawals: When you withdraw funds for eligible medical expenses, they are tax-free. If used for non-qualified expenses, the withdrawal is subject to taxes and a penalty (if under age 65). After age 65, you can withdraw the funds for non-medical expenses without the penalty, though they will still be subject to ordinary income tax.
- The IRS allows the rollover of all contributions, including employer contributions, as long as the total contributions do not exceed the annual limit.
- No Cap on Rollovers: There is no maximum amount that you can have in your HSA overtime. As long as you continue to meet the eligibility requirements (i.e., having an HDHP), your HSA balance can grow indefinitely.
- Nonelective employer contributions such as matching or seed contributions generally do not count toward the limit.
- You can still use your Health Savings Account (HSA) funds to pay for qualified medical expenses even if you are no longer enrolled in a high deductible health plan (HDHP). However, you will no longer be able to contribute to your HSA.
Flexible Spending Accounts (FSA) for 2024:
Expenses to consider
Throughout the year, taxpayers can use FSA funds for qualified medical expenses not covered by their health plan. These can include co-pays, deductibles and a variety of medical products. Also covered are services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details on eligible expenses and claim procedures.
Before enrollment (if an employer offers an FSA), review any expected health care expenses projected for the year. Participating employees should plan for healthcare activities when they calculate their contribution amounts. Consider:
- Updating medicine cabinet with necessary supplies.
- Big ticket expenses.
- Seasonal needs such as allergy products, sunscreen or warm steam vaporizers.
- Routine checkups or visits with specialists that regular insurance plans do not cover.
- Many over-the-counter items are FSA eligible.
- Eye exams or dental visits: Out-of-pocket costs for dental and vision care are also covered by an FSA.
Premium Tax Credit (APTC) for 2024:
Reporting income to the exchange:
- If your actual income exceeds the threshold for the APTC, you may need to repay some or all of the credit at the time of tax filing. For those purchasing insurance from the exchange and your income varies, month to month, you must inform the exchange of your change in income so the premium can adjust. The ACA and the APTC are a major issue with taxpayers who expect a refund and instead have a large balance due.
Earned Income Tax Credit (EITC) for 2024:
The EITC is designed to help low-to-moderate-income workers. To qualify, you must meet certain income and filing status requirements.
Other Key Information:
- Eligibility Requirements: To qualify for EITC, you must meet certain eligibility criteria such as:
- Having earned income (from work, self-employment, etc.).
- Meeting the age, relationship, and residency tests for children.
- Having investment income less than $11,000 (in both 2024 and 2025).
- Refundable Credit: The EITC is a refundable tax credit, meaning if your credit is more than your tax liability, you could receive the difference as a refund.
Federal Energy Tax Credits for 2024
The federal government offers tax incentives for individuals who make energy-efficient improvements to their homes or invest in renewable energy systems. Below are the key energy tax credits for 2024:
Residential Energy Efficient Property Credit (Solar, Wind, etc.):
- Credit Amount: 30% of the cost of qualifying property, including solar panels, solar water heaters, wind turbines, and geothermal heat pumps.
Energy Efficient Home Improvement Credit (Nonbusiness Energy Property Credit):
- Credit Amount: Up to $1,200 for specific home improvements such as energy-efficient doors, windows, insulation, and HVAC systems.
- $600 limit for doors and windows.
- $500 limit for insulation or roofs.
Electric Vehicle (EV) Tax Credit:
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- The credit can be as high as $7,500 for new EVs, but there are restrictions based on the buyer’s income and the vehicle’s cost.
Income Limits for the EV Tax Credit (2024)
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- Single filers: Annual income must be $150,000 or less.
- Heads of household: Annual income must be $225,000 or less.
- Married couples filing jointly: Annual income must be $300,000 or less.
Vehicle Price Caps for the EV Tax Credit (2024)
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- For passenger cars: The vehicle’s manufacturer’s suggested retail price (MSRP) must be $55,000 or less.
- For SUVs, trucks, and vans: The vehicle’s MSRP must be $80,000 or less.
- New electric vehicles and plug-in hybrid electric vehicles (PHEVs).
Credit Amount Based on Vehicle Type
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- New electric vehicles (EVs): The tax credit can be up to $7,500 for new qualifying EVs, depending on the battery size and other factors.
- Used electric vehicles (EVs): A credit of up to $4,000 is available for used EVs, but the vehicle price must be $25,000 or less and the buyer’s income must be below the income limits mentioned above.
- Used EVs must be at least 2 years old to qualify for the credit.
Alternative Fuel Vehicle Refueling Property Credit:
- Credit Amount: Up to 30% of the cost of purchasing and installing an electric vehicle charging station or other alternative fuel refueling equipment, up to a maximum of $1,000 for individuals and $30,000 for businesses.
Child and Dependent Care Credit
Generally, the child and dependent care credit covers up to 35% of up to $3,000 of childcare and similar costs for a child under 13, spouse or parent unable to care for themselves, or another dependent so you can work — and up to $6,000 of expenses for two or more dependents.
- The percentage of allowable expenses decreases for higher-income earners — and therefore, the value of the credit also decreases.
- Payments made from a dependent-care flexible spending account or other tax-advantage program at work may reduce your credit.
Saver’s Credit
The saver’s credit runs 10% to 50% of up to $2,000 in contributions to an IRA, a 401(k), a 403(b) or certain other retirement plans ($4,000 if filing jointly). The percentage depends on your filing status and income, but generally, it’s something to look at if your AGI in 2024 was $76,500 or less if married filing jointly, $57,375 if head of household and $38,250 if single.
Want another way to cut your tax bill? You can reduce your taxable income by contributing to a traditional IRA
Tax Credits for Education
American Opportunity Credit
The American opportunity tax credit runs up to $2,500 per student for tuition, activity fees, books, supplies and equipment during the first four years of college. It is partially refundable, so if the credit lowers your tax bill to $0, you can get up to 40% (limited to $1,000) back as a refund.
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- The student must be enrolled at least half-time and can’t have any felony drug convictions.
- Parents or qualified caretakers can take the credit if they qualify and claim the student as dependent on their return.
Lifetime Learning Credit
The lifetime learning credit can get up to $2,000 for tuition, activity fees, books, supplies and equipment for undergraduate, graduate or even nondegree courses at accredited institutions.
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- Unlike the American opportunity credit, there’s no workload requirement.
- The $2,000 limit is per return, not per student, so the most you can get back is $2,000 regardless of how many students you pay expenses for.
- You can claim both the American opportunity credit and the lifetime learning credit on the same tax return, but you can’t claim both for the same student.
Other Key Updates for 2024:
- Gift Tax Exclusion: The annual exclusion for gifts is $17,000 per recipient.
- AMT (Alternative Minimum Tax): Be mindful of the AMT threshold, especially for high-income earners.
- Tax Filing Deadline: Tax returns for 2024 are due by April 15, 2025, unless an extension is filed.
California State Income Tax Rates for 2024
California has a progressive income tax system with rates that vary depending on income and filing status.
California Standard Deduction for 2024
- Single or Married/RDP Filing Separately: $5,540
- Married/RDP Filing Jointly, Qualifying Surviving Spouse, or Head of Household: $11,700
Federal vs. California Tax Deduction Rules
- Federal Standard Deduction vs. State Itemizing:
- For federal tax purposes, you may choose the standard deduction or itemize your deductions. In 2024, the standard deduction for a single filer is $14,600, and for married filing jointly, it is $29,200.
- California allows you to itemize deductions even if you take the standard deduction on your federal return. This flexibility may help you maximize deductions at the state level, particularly if you have substantial state and local taxes (SALT) or other deductible expenses.
- State and Local Tax (SALT) Limitations:
- The federal government limits SALT deductions to $10,000 for both single filers and married couples filing jointly.
- California does not impose a SALT deduction limit, so taxpayers can deduct the full amount of their state and local taxes on their California tax return.
- Employee Business Expenses on California Return:
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- Federal: Employee business expenses have been disallowed for 2024 under federal tax law, meaning employees can no longer deduct unreimbursed business expenses related to their job.
- California: Unlike the federal government, California still allows deductions for employee business expenses that are necessary and ordinary for your job, such as unreimbursed travel expenses, uniforms, and home office deductions (subject to certain conditions).
California Tax Credits for 2024
Several tax credits are available for California taxpayers. Here are the most common credits that may benefit the average taxpayer:
- California Earned Income Tax Credit (CalEITC):
- The CalEITC helps low-income working Californians, with income limits that vary based on the number of children and filing status.
- Credit Amount: Varies based on income and number of dependents, with a maximum credit of approximately $3,000 for those with three or more children.
- Standard Deduction Credit:
- If you take the standard deduction, you may qualify for the Standard Deduction Credit.
- Amount: $100 for single filers and $200 for joint filers.
- Single filers: The credit phases out for single filers with income over $25,000·
- Married/RDP filing jointly: The credit phases out for married or RDP filers with income over $50,000.
- Child and Dependent Care Expenses Credit:
- A credit for qualifying child and dependent care expenses.
- Credit Amount: Varies from 20% to 50% of eligible care costs, with a maximum credit of $1,050 (for one child) to $2,100 (for two or more children).
- California State Disability Insurance (SDI) Credit:
- If you paid into California’s State Disability Insurance program, you may be eligible for a small credit for overpayment.
- Senior and Disabled Citizens Credit:
- Taxpayers 65 years or older or those who are permanently disabled may be eligible for a credit.
- Credit Amount: Varies based on income, with a maximum credit of $1,000.
- Renters’ Credit:
- A credit for renters in California who meet specific income limits and other qualifications.
- Credit Amount: $60 for single filers or $120 for joint filers.
- CalWORKs Credit:
- A credit for low-income families who receive assistance through the California Work Opportunity and Responsibility to Kids (CalWORKs) program.
- Green Vehicle Credit:
- For purchasing a new clean-energy vehicle (such as electric or plug-in hybrid cars).
- Credit Amount: Varies depending on the vehicle and energy source.
Example to Estimate Your Tax Bracket:
If you’re a single filer with taxable income of $64,600 in 2024, after subtracting your standard deduction of $14,550 your taxable income would be $50,000 you would fall into the 22% tax bracket. Your tax would be calculated as follows:
- First $11,000 taxed at 10% = $1,100
- Next $33,725 taxed at 12% = $4,047
- Remaining $5,275 taxed at 22% = $1,160.50 Total Tax Due = $1,100 + $4,047 + $1,160.50 = $6,307.50
Standard Deduction for 2024:
- Single Filers:
- Standard Deduction: $14,600
- Over 65 or Blind: An additional $1,850 (for each condition, so $3,700 total if both conditions apply)
- Total for Single Filers Over 65 (and/or Blind): $18,300
- Married Filing Jointly:
- Standard Deduction: $29,200
- Over 65 or Blind: An additional $1,500 for each spouse who is over 65 or blind
- Total for Married Filing Jointly (both spouses over 65 or blind): $32,200
- Head of Household:
- Standard Deduction: $21,300
- Over 65 or Blind: An additional $1,850
- Total for Head of Household Over 65 (and/or Blind): $23,150
Important Notes:
- You can receive the additional standard deduction if you are 65 or older or blind.
- The additional amount applies per person, so if both spouses in a married couple are over 65, both would receive the additional $1,500 each.
- If you’re both over 65 and blind, you can add the respective amounts for each condition (up to $3,700 extra).
The standard deduction is subtracted from your gross income to determine your taxable income. It is important to note that you can choose either the standard deduction or itemize your deductions, depending on which results in the greater tax benefit.
The IRS has released the following federal tax rates for the 2024 tax year. Your tax bracket depends on your filing status and taxable income.
2024 Federal Income Tax Rates
Key Points to Remember:
- Federal vs. California Deductions: Even if you use the standard deduction on your federal return, California allows you to itemize and provides additional deductions such as employee business expenses.
- State and Local Taxes: While the federal government limits SALT deductions to $10,000, California does not impose such limits.
- California Tax Credits: Many credits are available to California residents, particularly those related to childcare, income, and disabilities. Be sure to check if you qualify for any of these credits.
Which states have no income tax?
There are eight states that do not have an income tax:
States with No Income Tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming.
New Hampshire has no state tax on income, but it does make residents pay a 5% tax on income earned from interest and dividends.