IRS increases 401(k) contribution limits for 2026
The IRS will increase 401(k) and catch-up contribution limits for 2026, allowing workers to save up to $32,500 for retirement.
Tax season is almost upon us, and millions of Americans will soon be focusing on their taxes.
Every year, the Internal Revenue Service announces new tax brackets, or tiers of income, that are taxed at different rates under our country’s progressive tax system. Understanding tax categories is key to predicting the taxes you will owe.
Taxes are taxed at progressively higher rates depending on each level of income. The lowest income bracket pays the lowest tax rate, and the next highest income bracket pays a slightly higher rate. The higher your taxable income, the higher your tax rate, but the top tax rate applies only to the highest income bracket reached.
Tax rates also increase with inflation. The 2025 bracket that will be reflected on your 2026 tax return will be slightly higher than the 2024 bracket.
How do tax classifications work?
Let’s say you earn $75,000 in taxable income in 2025 and are single. On the first $11,925 of that income, you’ll pay the minimum tax rate of 10% in 2025. For income brackets between $11,926 and $48,475, you’ll pay a 12% tax rate. On all income above $48,475, you’ll pay taxes at a much higher rate of 22%.
There are a total of seven tax rates, each with a different tax rate.
The IRS uses inflation data to adjust your tax bracket for the next tax year. If you get a raise in 2025 to keep up with inflation, you’ll probably have to pay taxes at about the same rate as you did in 2024, all else being equal. If your salary has increased faster than inflation, you may be sneaking into a higher tax bracket. If wages don’t keep up with inflation, you may top out at a lower tier.
What is the top tax rate?
The top tax rate for individuals is 37%. In 2025, it will apply to single taxpayers earning more than $626,350. For married people filing jointly, the top tax rate is $751,601 in income.
Tax classification in 2025
The following 2025 tax brackets apply to tax returns filed in 2026:
For individual filers:
◾ 37% for taxable income over $626,350.
◾ 35% for income over $205,525.
◾ 32% for income over $197,300.
◾ 24% for income over $103,350.
◾ 22% for income over $48,475.
◾ 12% for income over $11,925.
◾ 10% on income up to $11,925.
For married couples filing jointly:
◾ 37% for taxable income over $751,600.
◾ 35% for income over $501,050.
◾ 32% if income exceeds $394,600.
◾ 24% if income exceeds $206,700.
◾ 22% for income over $96,950.
◾ 12% for income over $23,850.
◾ 10% on income up to $23,850.
Head of household tax classification
For tax purposes, the IRS typically defines the head of household as the parent who is responsible for more than half of the household’s expenses. Household heads have higher income thresholds than individual filers in each tax bracket to account for the additional costs they incur.
The household tax categories for 2025 are as follows:
◾ 37% for taxable income over $626,350.
◾ 35% for income over $250,500.
◾ 32% for income over $197,300.
◾ 24% for income over $103,350.
◾ 22% for income over $64,850.
◾ 12% for income over $17,000.
◾ 10% on income up to $17,000.
Tax category: 2026 and 2025
The IRS has already announced your 2026 tax bracket, which means the taxes you’ll be filing in 2027.
The 2026 tax brackets for individual filers are:
- 37% if income exceeds $640,600.
- 35% for income over $256,225.
- 32% for income over $201,775.
- 24% for incomes over $105,700.
- 22% for incomes over $50,400.
- 12% for incomes over $12,400.
- 10% for income up to $12,400.
And the tax brackets for 2026 for married couples filing jointly are as follows:
- 37% for incomes over $768,700.
- 35% for income over $512,450.
- 32% if income exceeds $403,550.
- 24% for incomes over $211,400.
- 22% if income exceeds $100,800.
- 12% for incomes of $24,800 or more.
- 10% on incomes up to $24,800.
How can I lower my tax rate?
There are many ways to lower your taxes. If you’re married, filing jointly with your spouse may result in lower taxes. Alternatively, depending on your income and circumstances, you can lower your tax rate by filing an individual tax return.
Another way to lower your taxes is to contribute to a 401(k). Doing so will reduce your taxable income. If your employer doesn’t offer a 401(k), contributions to a traditional individual retirement account may qualify for a tax deduction, which may also lower your deduction amount.
Daniel de Visse covers personal finance for USA Today
