Youāre no stranger to working hard for your paycheck. But when it comes to keeping what youāve earned, itās important to understand how taxes workāespecially marginal tax rates. With new tax brackets set for 2025, this is a great time to refresh your understanding of how this affects your W2 income and your overall financial plan.
What is a Marginal Tax Rate?
The U.S. tax system is based on a progressive tax rate. This means that as your income increases, the percentage of your income that you pay in taxes also increases. However, this doesnāt mean that all your income is taxed at the highest rate you qualify for. Instead, your income is divided into portions, or "brackets," each of which is taxed at different rates. This is called the marginal tax rate.
Here's a quick breakdown:
- Marginal tax rate refers to the rate of tax applied to your last dollar earned.
- Different portions of your income are taxed at different rates depending on which tax bracket they fall into.
For example, if you earn $70,000, part of your income might be taxed at a lower rate (say 12%), while another portion could be taxed at a higher rate (such as 22%).
So, this is a reminder that being in a higher tax bracket should NOT hinder you from making more money.
2025 Tax Brackets
Now, letās take a look at the anticipated tax brackets for 2025. Hereās a simplified version of how your taxable income will be categorized:
- 10%: Up to $12,800 (for single filers)
- 12%: $12,801 - $51,800
- 22%: $51,801 - $105,000
- 24%: $105,001 - $200,000
- 32%: $200,001 - $400,000
- 35%: $400,001 - $600,000
- 37%: $600,001+
(Note: These numbers are approximate and may change when the IRS officially releases the brackets.)
How This Applies to Nurses Working W2 Jobs
As a nurse working a W2 job, understanding marginal tax rates can help you make smart financial decisions. Hereās how:
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Withholdings: Your employer withholds taxes from your paycheck based on the information you provide on your W-4 form. Understanding your marginal tax rate can help you adjust your withholdings to avoid surprises at tax timeāeither owing too much or receiving a refund that means you overpaid throughout the year.
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Planning for Raises & Overtime: Nurses often work overtime or receive bonuses. These can push you into a higher tax bracket, but itās important to remember that only the income above the threshold of the lower bracket will be taxed at the higher rate, not your entire paycheck.
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Tax-Efficient Investments: Knowing your tax bracket helps you choose tax-advantaged investment options, like contributing to a 401(k) or 403(b), which can reduce your taxable income and keep more of your hard-earned money in your pocket.
Join me for a free investing class next month: RESERVE YOUR SEAT HERE
4. Side Hustles & Additional Income: If you have a side hustle (something many nurses are exploring), any additional income may also push you into a higher tax bracket. Understanding how marginal tax rates work can help you plan for this, ensuring you're prepared for the additional tax liability while also maximizing potential deductions.
Conclusion
Understanding marginal tax rates and the new 2025 tax brackets is key to keeping more of your paycheck and making smarter financial decisions. As nurses, you work incredibly hard, so itās crucial to have a tax strategy that works just as hard for you. Whether you're aiming for financial freedom or simply want to make sure youāre taking full advantage of your earnings, knowing how the tax system works is an important part of the equation.
Stay tuned for more financial tips tailored to your needs as a nurse. Let's keep pushing forward towards financial freedom!
3 Stock Market News This Week š
- McDonald's (MCD -0.06%) fell as much as 9% in post-market trading after the CDC linked an E. coli outbreak to the company's burgers.
- Tesla (TSLA -1.98%) shares zoomed up during postmarket trading after the company announced it had beat earnings expectations.
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BONDS ARE RISING. Since hitting a year-to-date low on September 16th (3.61%), the yield on the 10-year treasury has risen by more than half a percent.Thatās still lower than the bondās year-long high from April (4.73%), however.
2 Actions To Do Today š±
- MONEY: Start your holiday sinking fund. If you're like me, I love giving gifts during the holiday but if you're not prepared, this could break your bank. What is a sinking fund? It's a specific "bucket" you put your savings in for a specific purpose. You can do buckets in ALLY BANK! this is why I love using this bank for High Yield Savings.
- LIFE: Walk 20 minutes outside and feel the nice fall weather. (BONUS: Listen to
- my newest podcast episode while walking: LISTEN HERE)
ONE Quote to be Inspired āØ
"Less is more and more is more. It's the middle that's not a good place."
Source: Interview with Creative Chair
I saw a tiktok video the other day of how the only thing in our tombstone that connects birth to death is a dash. No one will know what you did, how many failures you had, how many nights you stayed up taking care of your newborn.. This video reminded me of the DASH POEM.
Something to think about this week.. and every day. "So, when your eulogy is being read, with your lifeās actions to rehash, would you be proud of the things they say about how you lived your dash?"
I encourage you to live your life to the fullest. do more. create more. laugh more. hug more.
Have a great week ahead!, Ellaine
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