(NEXSTAR) — Tax brackets are changing, Social Security retirement ages are increasing and certain Medicare premiums are increasing. Is there anything else scheduled for an increase? Maybe your salary.
The potential increase is not limited to those receiving raises in early 2025.
Like every year, the IRS has announced dozens of changes to various tax provisions that will impact 2025 (and 2026 tax season). These updates, i.e. the standard deduction increase, will affect your pay unless you get a raise of more than 2.7%.
Why your salary will increase
Updates to the IRS' tax rules will help reduce “bracket creep,” which occurs when inflation moves income taxes into higher brackets or reduces favorable credits, deductions, and exemptions. tax foundation.
For example, let's say your income this year is $101,000. You fall into the third tax bracket. That means you'll pay 10% tax on the first $11,600 you earn. 12% for chunks between $11,601 and $47,149. 22% on incomes between $47,150 and $100,524. Every dollar beyond that costs 24%.
If you don't get a raise and stay at $101,000 by 2025, you won't be in the 24% tax bracket. Instead, you'll pay 10% tax on the first $11,925 you earn. 12% on income between that threshold and $48,475. The rest is 22%. (This is a simple example that does not take into account basic deductions or other tax-related aspects.)
If the parentheses are not adjusted, a $101,000 salary would owe a higher tax liability in 2025 despite having less purchasing power due to inflation, the Tax Foundation explains. I'm doing it. However, because the tax brackets have been adjusted, the amount withheld from your paycheck in federal taxes may be reduced (employers may calculate How much will be withheld using W2 and IRS documents?)
What to do with “extra” funds
Even though you might get a pay increase in 2025, financial experts say you're not exactly receiving “extra” funds, but keep in mind that they're meant to offset inflation. They say it's important.
The U.S. Federal Reserve said last week that the U.S. economy will grow more than previously expected in 2025, despite concerns about rising inflation pressures and that President-elect Donald Trump's policies could accelerate inflation. also indicated that there is a high possibility of a gradual rate cut.
The Associated Press contributed to this report.
