National insurance has been cut by a further 2p, so workers will pay 8% of their earnings between £12,570 and £50,270, instead of the 12% it was before Autumn.
But tax thresholds - the amount you are allowed to earn before you start paying tax (and national insurance) and before you start paying the higher rate of tax - will remain frozen.
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This means people end up paying more tax than they otherwise would, when their pay rises with inflation but the thresholds don't keep up. That phenomenon is known as "fiscal drag" and it's often called a "stealth tax" because it's not as noticeable immediately in your pay packet.
Enter your salary to the nearest £1,000 in our calculator to see how much better or worse off you are overall, once they balance out against one another.
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That low threshold of £12,570 has been in place since April 2021. The Office for Budget Responsibility say that if it had increased with inflation as normal it would be set at £15,220 for 2024/25.
Workers would earn an extra £2,650 tax free each year in that case.
The higher threshold would be more than £61,000, meaning someone on a £60,000 salary would be paying the 40% income tax rate on almost £10,000 more of their earnings.
That would cost an extra £2,000 over the course of a year, more than offsetting the gains from cuts to national insurance.
Overall, workers are better off if they earn between £32,000 and £55,000, or more than £131,000, but everyone else will be paying more in 2024/25 than they would have done if the government had raised the tax thresholds as normal.
Someone on a £50,000 salary is best off, by £752 a year - not far off what the average package holiday to Europe cost in 2023.
That's because they benefit from the maximum amount of lower national insurance before falling into the high tax bracket.
But someone on £16,000 a year will pay £607 more in total - equivalent to more than three months of average household spending on food.
Their income level means national insurance savings are limited but they are paying 20% in income tax on an additional £2,650 of earnings.
The calculations don't account for any more complex tax deductions or credits for different groups of people, for example student loans, pensions or childcare.
But separate Sky News data analysis shows how young graduates now take home £1,200 less on average each month than they did before the pandemic after adjusting for inflation.
Methodology
Sky News has taken figures for what the new thresholds from 6 April 2024 would have been if they had increased with inflation from the Office for Budget Responsbility (OBR).
To work out how much less national insurance people will pay in 2024/25, we have worked out how much you would have paid on the 12% rate with the current thresholds, and how much you will pay on the 8% rate. This value will always be positive if you earn more than £12,570.
To work out how much fiscal drag has cost you, we have applied the new thresholds from the OBR to the lower 20% rate of tax, the higher 40% rate, and the highest 45% rate. We have also assumed that the taper, when you start losing your personal allowance, starts at £100,000 and you lose £1 for each additional £2 earned, as it was before. This value will always be negative if you earn more than £12,570.
We ran the workings for these calculations by the Chartered Institute of Taxation who corroborated our findings.
To work out the difference we have taken the fiscal drag figure away from the national insurance figure. If it's a positive number you are taking home more pay, but if it's negative you are taking home less pay.
That means that the fiscal drag savings assume that national insurance is 8% rather than the 12% it was before. If national insurance had stayed at 12%, the effect of fiscal drag would have been even greater for lower earners.
The Data and Forensics team is a multi-skilled unit dedicated to providing transparent journalism from Sky News. We gather, analyse and visualise data to tell data-driven stories. We combine traditional reporting skills with advanced analysis of satellite images, social media and other open-source information. Through multimedia storytelling, we aim to better explain the world while also showing how our journalism is done.
FAQs
Budget 2024: See whether you win or lose from tax and national insurance tweaks. Workers will see more money in their pay packet because of the 2p cut to national insurance, but frozen tax thresholds will be costing them in a less noticeable way. Use our calculator to see whether you're up or down overall.
Are tax rates changing in 2024? ›
In 2024, the top tax rate of 37% applies to those earning over $609,350 for individual single filers, up from $578,125 last year. Meanwhile, the lowest threshold of 10% applies to those making $11,600 or less, up from $11,000 in 2023. That means how much you pay in taxes could be higher or lower this year than in 2023.
Am I better off with the new budget? ›
Most people are better off this year, but roll on another few years - another few years in which the income tax brackets are frozen - and by 2027/28 all but the very poorest will be worse off as a result of government tax and benefit policies.
How much federal tax should I pay on $50,000? ›
If you are single and a wage earner with an annual salary of $50,000, your federal income tax liability will be approximately $5700. Social security and medicare tax will be approximately $3,800. Depending on your state, additional taxes my apply.
What will CA tax rates be in 2024? ›
- California Tax Changes Effective January 1, 2024.
- The payroll tax expansion increases the state's top income tax bracket from 13.3% to 14.4%.
- California also levies a 1% mental health services tax on income exceeding $1 million.
- The new total 14.4% tax rate applies to wage income over $1 million.
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
Why is my refund so low in 2024? ›
You may be in line for a smaller tax refund this year if your income rose in 2023. Earning a lot of interest in a bank account could also lead to a smaller refund. A smaller refund isn't necessarily terrible, since it means you got paid sooner rather than loaning the IRS money for no good reason.
What are 6 common budget mistakes you can t afford to make? ›
Failure to Adjust the Budget: A static budget may become outdated as your financial situation evolves. Life events such as job changes, salary increases, or unexpected expenses can impact your financial landscape. Regularly review and adjust your budget to reflect changes in income, expenses, and financial goals.
What is the #1 rule of budgeting? ›
Oh My Dollar! From the radio vaults, we bring you a short episode about the #1 most important thing in your budget: your values. You can't avoid looking at your budget without considering your values – no one else's budget will work for you.
Is over budget good or bad? ›
Going over budget can disrupt your finances. For instance, it might cause you to pile up more debt. That, in turn, could lead to a lower credit score.
If you claimed 0 and still owe taxes, chances are you added “married” to your W4 form. When you claim 0 in allowances, it seems as if you are the only one who earns and that your spouse does not. Then, when both of you earn, and the amount reaches the 25% tax bracket, the amount of tax sent is not enough.
Do you pay taxes on Social Security? ›
You must pay taxes on up to 85% of your Social Security benefits if you file a: Federal tax return as an “individual” and your “combined income” exceeds $25,000. Joint return, and you and your spouse have “combined income” of more than $32,000.
Can I get a tax refund if my only income is Social Security? ›
You would not be required to file a tax return. But you might want to file a return, because even though you are not required to pay taxes on your Social Security, you may be able to get a refund of any money withheld from your paycheck for taxes.
What state has the highest taxes? ›
New York has the highest overall tax burden, while Alaska has the lowest. Maine has the highest property tax burden, while Alabama has the lowest. California has the highest individual income tax burden, while seven states (including Texas, Florida and Washington) have the lowest.
Is Social Security taxed in California? ›
California does not tax social security income from the United States, including survivor's benefits and disability benefits. Social security income may be partially taxable under federal law.
Which states have no income taxes at all? ›
As of 2023, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the only states that do not levy a state income tax.
What will the tax bracket be after 2025? ›
Other tax brackets will move higher after Dec. 31, 2025 as well, including: The current 12% rate rising to 15% The current 22% rate rising to 25%
What will happen to tax rates in 2026? ›
Under the TCJA, the tax rates are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. On January 1, 2026, the rates return to their pre-TCJA amounts of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The income brackets to which those rates are to apply will also be different and are adjusted for inflation each year.
What is the standard deduction for 2024 for seniors? ›
For 2024, assuming no changes, Ellen's standard deduction would be $16,550: the usual 2024 standard deduction of $14,600 available to single filers, plus one additional standard deduction of $1,950 for those over 65.
What is the tax bracket for 100k in 2024? ›
These are marginal tax rates
That means, for 2024, you'll pay 10% on your first $23,200, then 12% on dollars 23,201 to 94,300, and so on. In other words, someone with $100,000 in taxable income in 2024 would fall into the 22% bracket, but would owe a tax bill far below $22,000.
