Don’t be surprised by a big tax bill this time next year.
Here’s how you can accurately estimate your federal taxes owed in 2025 for this year and adjust your paycheck withholdings so you don’t get shocked with a big payment. All the information you need is available now.
The IRS publishes new tax rates at the beginning of each year that are adjusted for inflation:
Marginal rates: For tax year 2024, the top tax rate remains 37% for individual single taxpayers with incomes greater than $609,350 ($731,200 for married couples filing jointly).
The other rates are:
- 35% for incomes over $243,725 ($487,450 for married couples filing jointly)
- 32% for incomes over $191,950 ($383,900 for married couples filing jointly)
- 24% for incomes over $100,525 ($201,050 for married couples filing jointly)
- 22% for incomes over $47,150 ($94,300 for married couples filing jointly)
- 12% for incomes over $11,600 ($23,200 for married couples filing jointly)
The lowest rate is 10% for the incomes of single individuals with incomes of $11,600 or less ($23,200 for married couples filing jointly).
How to use this information:
Example: a married couple filing jointly with taxable income of $125,000. Taxable income is after your contributions to 401K or IRA and minus your standard deduction. The standard deduction for married couples filing jointly for tax year 2024 rises to $29,200, an increase of $1,500 from tax year 2023. For single taxpayers and married individuals filing separately, the standard deduction rises to $14,600 for 2024, an increase of $750 from 2023; and for heads of households, the standard deduction will be $21,900 for tax year 2024, an increase of $1,100 from the amount for tax year 2023.
Then you start computing the tax on your strips of income:
- 12% of $23,200 = $2784
- 22% of $71,000 ($94,300 – $23,300) = $15,620
- 24% of $30,700 ($125,000 – $94,300) = $7,368
Total tax due is $25,772.
Look at your pay stub, assuming you are paid every two weeks. What is the amount of federal taxes taken out? Let’s say it’s $750. Multiply that times 26 weeks.
That’s $19,500. You will owe the IRS $6,272 on April 15, 2025.
Or you can increase your W-4 to withhold an extra $250 per pay period and come out even. If you’re doing this now instead of in January, you’ll have to increase that $250 to compensate.
If this is too much, the IRS has a calculator to help walk you through the process.
Tax credits, such as those for children, will also change the amount you need to withhold.
Big changes in your life may force you to go back and reevaluate your tax withholdings.
“Adjusting withholding on their paychecks or the amount of their estimated tax payments can help prevent penalties,” the IRS says on their site tackling the issue. “This is especially important for people in the gig economy, those with more than one job and those with major changes in their life, like a recent marriage or a new child.”
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