As tax changes loom for 2024 and 2025, middle-class families may face higher taxes while the wealthy could see substantial cuts.
At a Glance
- Project 2025’s tax plan proposes a two-bracket system that could raise taxes for middle-class families
- Wealthy households may receive significant tax cuts under the proposed plan
- The Tax Cuts and Jobs Act provisions are set to expire at the end of 2025
- IRS announces inflation adjustments for tax year 2025, affecting over 60 tax provisions
- Standard deductions and tax brackets will increase for 2025
Project 2025’s Proposed Tax Changes
The conservative-backed Project 2025 has put forward a tax plan that could significantly alter the tax landscape for Americans. Under this proposal, a two-bracket income tax system would be implemented, potentially raising taxes for many middle-class families. According to analysis, a median family of four could see their taxes increase by $3,000, while a single-person household might face a $950 tax hike.
In stark contrast, the plan appears to heavily favor high-income earners. Wealthy households with incomes over $10 million could receive an average tax cut ranging from $1.5 to $2.4 million. This disparity in tax treatment has raised concerns about the plan’s impact on income inequality and overall tax fairness.
“capital gains and qualified dividends should be taxed at 15 percent” – Project 2025
The proposal also includes a significant cut to the corporate tax rate, lowering it to 18%. This change would primarily benefit large corporations, including Fortune 100 companies. Additionally, the plan suggests replacing income and corporate taxes with a consumption tax, potentially leading to a 45% value-added tax (VAT). Such a shift could cause a substantial one-time inflation surge, raising prices on goods and services across the board.
Expiring Tax Cuts and Jobs Act Provisions
As we approach 2025, taxpayers should be aware that provisions from the Tax Cuts and Jobs Act of 2017 (TCJA) are set to expire at the end of December 2025. This expiration is prompting discussions on tax and fiscal policy among lawmakers and economists. Extending these expiring provisions could increase deficits by $4.0 trillion over the 2025-2034 period, adding pressure to an already strained federal budget.
The TCJA introduced several changes that simplified the tax code for many Americans. It nearly doubled the standard deduction, reducing the incentive to itemize deductions. This change not only simplified the tax filing process for millions but also increased the tax code’s progressivity. The personal exemption was eliminated and replaced by an increased standard deduction and an enhanced child tax credit (CTC).
IRS Announces 2025 Tax Year Adjustments
The Internal Revenue Service has released annual inflation adjustments for the 2025 tax year, affecting over 60 tax provisions. These changes will impact taxpayers when they file their returns in 2026. Key adjustments include increases to standard deductions and changes to tax brackets.
“The Internal Revenue Service announced today the annual inflation adjustments for tax year 2025.” – Internal Revenue Service
For 2025, the standard deduction will increase to $15,000 for single taxpayers, $30,000 for married couples filing jointly, and $22,500 for heads of households. The top marginal tax rate of 37% will apply to incomes over $626,350 for single filers and $751,600 for married couples filing jointly. These adjustments aim to prevent “bracket creep,” where inflation pushes taxpayers into higher tax brackets without a real increase in income.
Other notable changes for 2025 include an increase in the maximum Earned Income Tax Credit to $8,046 for those with three or more qualifying children. The alternative minimum tax exemption will rise to $88,100 for individuals and $137,000 for married couples filing jointly. The foreign earned income exclusion will increase to $130,000, and the estate tax basic exclusion amount will rise to $13,990,000.
As these tax changes approach, it’s crucial for taxpayers to stay informed and prepare accordingly. Consulting with tax professionals and utilizing available resources can help individuals and businesses navigate these changes effectively and optimize their tax strategies for the coming years.
