It’s 2025: What’s Your Tax Bracket?

Unsuspecting people are stepping into a tax bracket they never thought they’d see. You may be one of them.

How do I know this? From emails I received in response to my farewell column in The Dallas Morning News. Yes, it’s anecdotal. But hear me out.

Many emails were from other former Dallas Morning News staffers. They thanked me for the seminars I gave about how to use the company 401(k) plan, and they had taken the advice in my column. What surprised them was the size of their nest eggs – figures ranged from $2 million to $4 million. All who wrote had more than $1 million. All were surprised, maybe even shocked. They didn’t expect to retire so well-off.

They aren’t alone. They had joined a group identified long ago as the “Semi-Affluent.”

This is entirely reasonable. No one goes into journalism expecting to become rich. But overall consumer net worth has quadrupled in the last 25 years. You can see that here.

Anyone who had been saving in the ‘90s and continued to save in this century had a good chance of becoming modestly wealthy. You can see the wealth change across income groups here.

So how did it happen?

It didn’t come from a fabulous IPO. Or from owning company stock in the 401(k) plan. It didn’t come from having risen far higher than hoped. Their surprising wealth came from four things:

— Being married and having a working spouse.

— Contributing to the 401(k) plan and capturing the match.

— Having a company pension, even though the plan and its benefits had been capped in 2007.

— Having a long career at the same company, which builds a larger pension than working for several companies.

While none revealed their income, the existence of two Social Security incomes and modest withdrawals from their savings were enough to push them into some of the tax traps set by the bipartisan weasel-word crew in Washington. The existence of a pension, perhaps two, made it certain.

Good income, low taxes

 The federal income tax code seems quite progressive. A retired married couple, for instance, pays at a 10 percent rate on their first $23,200 in taxable income and 12 percent on additional income up to $94,300. (For singles, the income amounts are half.) In addition, at least 15 percent of their Social Security income is excluded from taxation, and they have a standard deduction of $31,500. This doesn’t include the additional $6,000 deduction for seniors in the “One, Big, Beautiful Bill” Act that was passed earlier this year.

As a result, a couple can have at least $131,800 of retirement income and not pay a federal income tax rate over 12 percent. Their average tax and tax rate, which I found using the retirement tax calculator on www.smartasset.com, would be $10,689 or about 8 percent.

This compares rather nicely to the tax rate of 22 percent that begins at $94,301 or the 35 percent tax rate that begins at $487,451. You can check current tax rates here.

So, it’s hard to say that successful savers get a raw deal on taxes.

Except for the tax trip wires

The first trip wire: Unfortunately, the figures above don’t include the taxation of Social Security benefits, a topic I’ve written about for decades. As your income from other sources increases, it is more likely that you will trigger the taxation of benefits. The effective tax rate on each additional dollar of income can equal, or exceed, the tax rate on the very well-off.

You can see specific calculations in earlier columns here and here.

The second trip wire: The possibility of having to pay a higher premium for Medicare was remote when the fees were first imposed. No more. If your 2025 “modified adjusted gross income” is over $212,000 for a couple or $106,000 for an individual, you’ll pay a $74 monthly premium over the standard $185 a month cost of Medicare part B. Expect a big bump in 2026. One former news staffer I spoke with had been through a long divorce. Now filing as a single person, he was surprised at his Medicare premium.

You can see the current Medicare premiums here.

The third trip wire: Retirees who go back to work face a possible triple hit. If they work as an independent contractor or freelancer, they will pay the full employment tax, 15.3 percent, on their earnings in addition to paying 12 percent or more in income taxes on the additional income, a total of 27.3 percent. Worse, the additional income may also make them reach an income that will hit one, or both, of the earlier two trip wires.

This isn’t the simple retirement you imagined

One way to deal with this is to have competent advice from a financial adviser or tax preparer who rises above reporting what has happened to start anticipating what you can do to avoid tax traps in the future. That, sadly, is hit-or-miss at best – and a topic I’ll be writing about in future columns.

The other way, which is almost certainly wishful thinking, is to convince the folks who purport to represent us in Washington to make it as easy for working folks to conserve their wealth as they make it for their much, much wealthier benefactors.

Related columns:

Scott Burns, “Are You Semi Affluent?”, 10/24/1999: https://scottburns.com/are-you-semi-aflluent/

Scott Burns, “The Other Enemy of 401(k) Plans (And Your Retirement),” 4/26/2015: https://scottburns.com/the-other-enemy-of-401k-plans/

Scott Burns, “The 401(k) Plan Tax Trap,” 2/18/2003: https://scottburns.com/the-401k-plan-tax-trap/

Scott Burns, “How the Tax Torpedo Hits,” 2/11/2003: https://scottburns.com/how-the-tax-torpedo-hits/

Sources and References:

Federal Reserve, Balance Sheet of Households and Nonprofit Organizations: https://www.federalreserve.gov/releases/z1/dataviz/z1/balance_sheet/chart/

Dqydj.com, “Net Worth Percentiles Over Time, United States,” https://dqydj.com/net-worth-by-year/

This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

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(c) Scott Burns, 2025