The IRS has recently announced adjustments to federal income tax brackets for 2025, which will take effect during tax filings in 2026. These changes, aimed at accounting for inflation, will have significant implications for Tennessee residents. This article will break down the new tax rates, standard deductions, and the projected impact on households across the state.
New Tax Brackets and Rates for 2025
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With the IRS raising income thresholds by approximately 2.8% from 2024, Tennessee taxpayers will see some adjustments in their tax obligations. Here are the new tax rates for individual and married filers:
- 10%: For incomes up to $11,925 for individuals and $23,850 for married couples.
- 12%: For incomes exceeding $11,925 but less than $48,475 for individuals; for married couples, it’s from $23,850 to $96,950.
- 22%: For individual incomes between $50,000 and $100,000, and for married couples between $100,000 and $200,000.
- 24%: Applicable to individual incomes from $103,350 to $197,300, and from $206,700 to $394,600 for married couples.
- 32%: For individual incomes between $197,300 and $626,350, and for married couples between $394,600 and $751,600.
- 35%: For incomes over $250,525 for individuals and $501,050 for couples.
- 37%: The top tax rate applies to individuals earning over $626,350 and married couples earning over $751,600.
These adjustments aim to prevent taxpayers from moving into higher brackets solely due to cost-of-living increases, ensuring that their standard of living remains unaffected.
Increased Standard Deductions
In tandem with the new tax brackets, the IRS has also increased the standard deduction for tax year 2025. The new amounts are:
- $15,000 for individuals.
- $30,000 for married couples filing jointly.
This increase is designed to provide further relief to taxpayers and reduce their taxable income.
Impact on Tennessee Households
Tennessee, with a population of approximately 7.1 million, is home to a diverse range of income earners. Here’s a breakdown of how the new tax brackets will affect different income groups:
Lower-Income Households
Around 5.6% of Tennessee households, approximately 397,000, earn less than $10,000 annually. These households will fall into the 10% tax bracket, benefiting from the lowest tax rate available.
Middle-Income Households
Approximately 31% of Tennessee households (over 2.2 million) earn between $10,000 and $49,000. Most of these households will fall into the 12% bracket, while those earning below $11,925 will be taxed at 10%. Households earning over $48,475 will see a slight increase to 12%.
Upper-Middle-Income Households
Another 30% (about 2.13 million households) earn between $50,000 and $100,000, placing them in the 22% tax bracket. This segment represents a significant portion of Tennessee’s working population.
Higher-Income Households
About 24% of households (roughly 1.7 million) fall within the $100,000 to $200,000 income range. Most of these households will be taxed at 24%, with a small percentage seeing rates rise to 32% if their income exceeds $197,300.
Top Earners
Finally, 8.6% of Tennessee households, around 610,000, earn over $200,000 annually. These households will be subject to the 32%, 35%, or 37% tax rates, depending on their exact income levels. Due to the lack of detailed Census Bureau data, it’s unclear how many households fall into the top tax bracket.
Conclusion
The new IRS tax brackets for 2025 represent a thoughtful adjustment aimed at alleviating the financial burden on Tennessee taxpayers. With the increase in standard deductions and the careful calibration of tax rates, many households may find themselves with a little more financial relief in the coming years. As taxpayers prepare for the upcoming tax year, understanding these changes will be crucial for effective financial planning.
