IRS releases new tax brackets & rates: Here’s what to know

00:00 allie

The IRS has announced new tax brackets and rates for the upcoming filing year, and these numbers determine how much of your income goes to taxes. Senior reporter Kerry Hannon will detail the big changes you need to know this tax season. So Kerry, let’s start with the basics. What do taxpayers need to know about the new brackets and rates?

00:17 Kerry Hannon

Yes, Ally, the biggest thing that happens every year is that the government and the IRS adjust your tax bracket based on inflation. So, you know, they call it bracket shifting, so your income doesn’t shift into a higher tax bracket because of inflation. So that’s what we’re seeing this year. Again, they adjust them marginally to account for inflation.

00:50 allie

I understand So if someone makes the same money in 2024 and 2025, what difference will they see when they apply next year? Is there any difference?

01:00 Kerry Hannon

Yeah, interestingly enough, you may actually have to pay a little bit less because if you earn the same amount in 2024 and 2025, they increased the new bracket and the standard deduction because of this adjustment to the inflation index. So you may actually pay a little less.

01:17 allie

So what will be the tax table of retirees? How is this changing?

01:23 Kerry Hannon

Yes, the biggest thing that came out of the new tax bill was; Seniors will temporarily get a $6,000 tax break in addition to the standard deduction for 2025, 2026, 2027 and 2028 if you’re 65 or older. So it’s only for a short period of time and it’s phased out based on your income level. So I think individuals get 6,000 at 75,000 and couples get 6,000 at 150,000, so 6,000 is the maximum for that. This is a development that retirees can look forward to.

01:58 allie

Now, the state and local tax deduction, also known as SALT, has increased from 10,000 to 40,000 this year. Why is this important and who will benefit most from it?

02:11 Kerry Hannon

Ally, if you’ll forgive me, I just wanted to say one more thing about the last question, there are some big changes to the Medicaid tax, to Medicaid, that will affect seniors as well, increasing costs and making them have trouble with long-term care. So back to salt. I am sad. So there seems to be a gain and an impossible loss for seniors in the tax code. But the interesting thing about salt is they increased the deduction, which is great, uh it’s great that they’re exaggerating this, but I have to say, talk to your tax professional because if you live on a high tax for a state with high local and state taxes, it’s mandatory. This is a great way to reduce your bill. Of course, if you specify in detail. And the idea is that if your local laws allow it, you can try to do a little planning so that you can get that full deduction within a year.

02:51 allie

And finally, Carrie, we hear tax advisors talking about lump sum deductions. What does this mean? What is bundling and how can it help people maximize their tax savings?

03:07 Kerry Hannon

Yes, bundling is a great strategy for a lot of people because yes, the standard deduction is pretty hefty these days. But if you’re charitable and want to take your charitable deductions, you’ll need to go above that standard deduction. So one way to do this is to take maybe two years of your charitable deductions and put them all in one year, and then you get the full impact of that charitable deduction because you’re above the standard deduction. So this is one way to do it. This can also help with grouping medical expenses and helping you get over the certain percentage that must be exceeded to be able to write off those expenses beyond the standard deduction.

03:52 allie

And Carrie, great information. Everything we need to know about the new taxes. Thanks a lot.

03:56 Kerry Hannon

Thank you Ellie.

03:58 Speaker A

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