What Will Tax Brackets Be After 2025?
As 2025 approaches, taxpayers across the U.S. are preparing for potential changes to federal and state tax laws. While Massachusetts’ tax rates are expected to remain stable, federal tax brackets are set to shift as provisions from the 2017 Tax Cuts and Jobs Act (TCJA) expire. Understanding these upcoming changes is essential for proper financial planning.
Federal Tax Brackets After 2025
The TCJA, which significantly lowered tax rates and expanded income brackets, is set to sunset at the end of 2025. Unless Congress intervenes, tax brackets will revert to their pre-2018 levels, resulting in higher income tax rates for most individuals and businesses. Here’s what this could mean:
The top income tax rate could rise from 37% back to 39.6%.
The standard deduction may decrease, meaning more income will be taxable.
Personal exemptions, which were eliminated under TCJA, might return.
The child tax credit could be reduced from its current levels.
These changes could lead to a higher tax burden for many individuals and families, making tax planning even more critical before 2026.
Massachusetts Tax Landscape
While federal taxes may increase, Massachusetts’ state tax rates are expected to remain stable. However, taxpayers should keep an eye on potential policy changes, particularly regarding deductions and surtaxes.
Flat Tax Rate: Massachusetts transitioned to a flat 5% income tax rate for most taxpayers. However, the recently introduced 4% surtax on income above $1 million may impact high earners.
Deductions and Credits: Changes in federal deductions may indirectly affect Massachusetts taxpayers, as some state tax calculations rely on federal taxable income.
Estate Tax Reform: Massachusetts recently increased its estate tax exemption to $2 million, but future legislative changes could further alter the state’s estate tax policies.
How to Prepare for 2026
To minimize potential tax burdens, individuals and businesses should consider proactive tax planning. This may include:
Maximizing tax-advantaged accounts like IRAs and 401(k)s before potential deduction limits change.
Exploring strategies to accelerate income into 2025 while tax rates are lower.
Consulting a tax professional to assess how changes might impact overall liabilities.
While Massachusetts tax rates remain steady for now, federal tax increases could have significant effects on residents. Staying informed and planning ahead will be crucial for financial security in the post-2025 tax landscape.
