Ugh, taxes. There’s probably nothing more universally disliked than taxes, amiright? The annual ritual of performing a financial enema on yourself (or having a “tax professional” do it for you) is such a joy that it’s a wonder we haven’t designated April 15th as a national holiday. But I digress.
As you might guess (since it’s a government thing), income tax brackets aren’t as simple as they sound…or maybe should be. But, since they obviously affect (and are affected by) our Paychecks we should probably understand how they work. And, since the IRS recently updated the tax brackets for next year, we’ll look and see what’s changed.
Here are Five Fast Facts on next year’s tax brackets:
- 🤔 How Tax Brackets Work - There are seven brackets ranging from 10% to 37%, and the higher your income the higher bracket you land in (and the more you pay). But you don’t just pay the percentage of your bracket on your full income - you only pay the designated percentage on the amount of income in each bracket. For example, if you make $50k this year, you’re in the 22% bracket, but you don’t just pay 22% on all $50k. You pay 10% on the first $11,600 of income (the amount of your income in the first bracket), then 12% on $11,600 up to $47,150 (the amount of your income in the second bracket), then 22% on $47,150 up to $50k (the amount of your income in the third bracket). Clear as mud, right?
- ❓ Why The Change? The IRS made changes to the 2024 brackets to help account for inflation. While it sucks that we have enough inflation to warrant the change even in our tax brackets, it’ll actually help out a little bit because it means we stay in lower brackets even with higher Paychecks now (to compensate for higher costs on everything due to inflation). Basically, the pain points are higher so you get less pain.
- 🧑 Single Filers - For single filers, the increases in the brackets go like this: 10% bracket up $600, 12% up $2,425, 22% up $5,150, 24% up $9,850, 32% up $12,475, 35% up $31,225, and 37% is still uncapped on the top end.
- 👫 Married Filers - For married filers filing jointly, the increases in the brackets go like this: 10% up $1,200, 12% up $4,850, 22% up $10,300, 24% up $19,700, 32% up 24,950, 35% up $37,450, and 37% is also still uncapped on the top end.
- ❗ Standard Deductions - The standard deductions are also being raised. These are deductions you can use to reduce your total taxable income (meaning you’ll pay less in taxes). For single filers it went up $750, for married filing jointly it went up $1,500. If you’re age 65 or older, you can add another $1,550 in deductions, too. More deductions = lower taxes…yay!
🔥Bottom line: These changes are for next year, so they’ll actually kick in when you do your taxes in 2025. It may not seem like a huge difference, but every penny you don’t pay in taxes is another penny in your own pocket. And despite what the government says, we think YOU know how to spend your money better than they do!
What do you think of these tax bracket changes?
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