Michael Henaghan, Managing Editor at Wolters Kluwer, breaks down the projected 2027 federal tax brackets—how they’re calculated, why “bracket creep” quietly pushes taxpayers higher even when real income hasn’t grown, and what’s changing with 2027 retirement contribution limits (including the 401(k) jump to $25,500). Transcript: Jeffrey Snyder, Broadcast Retirement Network Well, Michael, it’s so great to see you. Thanks for joining us this morning. Thanks for having me. I’m happy to be here. Yeah, really excited. And look, taxes isn’t a fun topic for anyone, especially when it rolls around to April 15th. But you and the team have done a tremendous job. And I think it’s important that we understand kind of what’s going on with taxes for 27. So you and the team have done a great job in trying to figure out some of the tax brackets. Give us the, before we kind of get into the meat and the details, we’re gonna talk about some of the retirement numbers, et cetera. Give us the lay of the land, the process you use to calculate how you figure things out to the extent you can. Michael Henaghan, Managing Editor at Wolters Kluwer Sure. So it’s, you know, for someone like me, it’s pretty interesting, right? It’s a lot of fun. Like it’s a fun little spreadsheet that we work with. You know, it’s not a huge mystery, right? Like it’s all built into the tax code, how it all works. Basically what it comes down to is, you know, the Internal Revenue Code determines these base amounts for all these amounts, right? And it’s, there’s over a hundred inflation adjusted amounts that come out of the IRS every year. You know, they set a base amount in the code and they set a base year, right? And then we go in and the way it works is, you take a CPI rate, right? For a 12 month window. And you compare it to the CPI rate for the 12 month window of the base year. And then from there on, it’s just math, right? You divide the new CPI rate by the base year CPI rate. You multiply it by the base amount. There’s a little bit of rounding that goes on to it. And then, you know, you get the new number, right? It’s a little bit more complicated than that. I might be oversimplifying it. But what it comes down to is just, you know, plain old ninth grade math. Jeffrey Snyder, Broadcast Retirement Network Yeah. And thank you for that. And I don’t think you, you know, I mean, I think you guys do a tremendous amount of work to do it. So it’s probably not simple so that I can do it on a calculator. But be that as it may, I wanna get into some of the tax code changes in a second. I’m not gonna ask you specific details, but what can you tell us about these new tax brackets for 27? What should tax filers be aware of? Because they should probably, well, what should they be aware of? Then we can talk about what maybe they should do. So what should they be aware of when you take a look at these new tax brackets? Michael Henaghan, Managing Editor at Wolters Kluwer Well, you know, the reason for making these new tax brackets is to avoid something that’s called bracket creep, right? So as a very simple explanation of what that means and with numbers, I’m basically going to be making up is, so let’s say that you are a married person, a married couple that makes $120,000 a year, right? That puts you in the 22% tax bracket. Now, but the common misconception about the way tax brackets work is if, you know, your mind says I’m in the 22% tax bracket. That means if my taxable income is $120,000, I pay 22% of that to Uncle Sam, right? That’s not how it works, right? It’s a progressive tax system. So the first $20,000 is taxed at 10%. Then from $20,000 to $100,000, it’s taxed at 12%, I think. And then the amount over $100,000 is taxed at 22%, right? What happens with bracket creep is if you don’t adjust those brackets every year, the more money you make as a result of a cost of living increase means that you’re paying more in taxes, right? So like if you went from $120,000 to $125,000, now you have more income that’s in that 22% tax bracket. If you got that increase because of the cost of living increase, you know, milk is more, gifts is more, eggs is more, you’re not economically making any more money. But without the bracket adjustments, now you’re paying more taxes on what is economically the same amount of income, right? So what we see from the tax brackets is really kind of a reflection of what you’re seeing in the world, right? So, you know, inflation is higher than anyone would like, like inflation is a naturally occurring thing, right? A little bit of inflation is a good thing. But when inflation is high, like we see that reflected in the tax brackets, we see it reflected in the standard deduction, we see it reflected all throughout, right? So I think the bottom line is what we’re seeing now is inflation is high and that is reflected generally in the tax code as well, so. Jeffrey Snyder, Broadcast Retirement Network Well, hey, look, I mean, this is the reality we live in and unfortunately, there are some challenges with affordability that we’re all feeling and that’s probably a discussion for a different day. Let me ask you, so these are 2027 tax brackets, so I’m assuming this would apply, correct me if I’m wrong, to income earned from January 1st, 27 to December 31st, 27. Am I correct in that assumption? Michael Henaghan, Managing Editor at Wolters Kluwer That is absolutely correct, yes. Jeffrey Snyder, Broadcast Retirement Network Okay, and so with this information coming out, I’m thinking about Americans out there, what should they be thinking about? Should they be knowing that these tax brackets are gonna change, they’re armed with this information, they may be working full-time jobs, many Americans are, should they be thinking about possibly, we don’t wanna give tax advice here, but should they be thinking about or reevaluating their payroll deduction, the W-4, all the things that they have filled out in the past? So should they take a look at those things with a tax advisor? Michael Henaghan, Managing Editor at Wolters Kluwer You know, that’s always a good advice, right? That’s always a good thing to look at, you always wanna, especially at the beginning of the year, you wanna take a look at your withholding, make sure that everything is lining up right, but the reality is you’re gonna make what you’re gonna make, right? So I mean, for people who can defer income, like that’s generally good advice, I know we’re not giving tax advice, but income deferral is almost always a good thing, right? And, but what it comes, but so the tax brackets aren’t necessarily, there’s not a lot of juice to squeeze out of that, right? You’re gonna make what you’re gonna make, you’re gonna pay what you’re gonna pay, right? What it comes down to is things like, you know, there are business deductions that are available to businesses, right? Like, you know, larger businesses may, you know, the 179 deduction is an example, right? That is adjusted for inflation too, right? For individual taxpayers, a lot of that comes down to like, things like retirement decisions, right? Like, you know, we can project out what like the IRA contribution limit is going to be for 2027, right? We project out what the 401k contribution limit is going to be for 2027, right? And, you know, eventually the IRS is gonna come up out with this information too, right? But the value of projecting it is, you know, you know, people get that information sooner, right? So you can kind of make those decisions ahead of time. And for, you know, a practitioner, right? Like, which, you know, is who we serve, like they have that information and they can work with their clients earlier in the year to kind of set the ground, get the ground running on those kinds of decisions late in 2026. So, you know, maybe you could decide, you know, whether you’re going to, you know, max out your IRA contribution this year or max it out next year, right? If you have a limited amount of money, you know, you have a little bit more wiggle room next year because that contribution limit is higher, so. Jeffrey Snyder, Broadcast Retirement Network Well, I like that you bring up some of the deductions. And can we talk a few minutes about some of the benefits, the employee benefits? You mentioned IRAs, maybe the 401k, 403b, 457b limits. Are those limits projected? I would assume so, are they projected to go up significantly, maybe incrementally? What is the read there? Well, that’s an interesting foible of inflation adjustments, right? Michael Henaghan, Managing Editor at Wolters Kluwer Because, you know, and it’s not like in your head, right? Read in the paper, like inflation is three and a half percent. That means these things are going to go up by three and a half percent, right? Because of the intricacies of how these things work and because of rounding, it doesn’t always work out in that linear of a fashion, right? So for example, so the 401k contribution, the limit for 2026 was 24,500, right? We’re projecting that that limit’s going to go up to 25,500, right? That’s a pretty big increase, right? Yeah, it is. That’s more than, like if inflation is 3%, I believe that’s more than a 3% increase, right? That all comes down to rounding, right? So because of the way the rounding works, like it runs rounds down to the next lowest 500. So if you were just under the rounding cap, so if it was 24,500 last year, the unrounded amount might’ve been 24,999, right? But that rounded down to 24,500. Now with the adjustments, it goes up, say it goes up to 25,501, right? That works out to a $1,000 increase in the cap, but the actual math only made for like a $502 increase, right? You compare that to the IRA contributions limit, right? Which last year was 7,500. We are projecting that’s going to stay 7,500 next year, right? So it’s a smaller number. So the increase has a little bit less of effect, but what it comes down to is weirdness with the way the rounding works, right? So it’s always a little frustrating because like we’ll project these numbers and we publish these numbers, right? And then we get questions like, well, inflation’s five and a half percent or whatever it was a few years ago. This isn’t reflected here, but it comes down to its rounding. So it’s not always an across the board increase of like whatever inflation is, right? Like it goes a little bit, a little bit, so. Jeffrey Snyder, Broadcast Retirement Network Well, that’s fair. I mean, I think, look, it’s good enough for, we used to say when I was working as a cabin maker, it’s good enough for government work, meaning it’s good enough for the information you need, for the processing, for the practitioners. And then you come back, hey, look, even the government refines its labor numbers over a period of time, right? Don’t they every quarter look back and say, hey, the job market was this and we said it was this. So we have to give ourselves a little bit of grace. Let me end on this, if I may, and then maybe we’ll bring you back at another date as we maybe close out the year. When does the Internal Revenue Service, so these are projections, clearly the IRS has the final say, I would imagine. When do they weigh in? And then I would assume you guys make some adjustments along the way as well. Michael Henaghan, Managing Editor at Wolters Kluwer Yeah, so we’re expecting those numbers to be released by the IRS any day. I’ve been paying attention this morning, they haven’t come yet. You know, so there’s two large batches of numbers that come out and they’re based on different calculations. The bulk of them are the ones that include the tax brackets, standard deduction, those kinds of things. Those we’ve seen as early as October 9th, we’ve seen them as late as November, like the second week of November, right? The retirement ones are based on a different batch of numbers. It’s an extra month of CPI that gets included. And again, we’ve seen those anywhere from mid-October to mid-November, right? But the IRS has all the data they need. It’s just a matter of them doing whatever it is they do. Jeffrey Snyder, Broadcast Retirement Network Yeah, well, I’m sure they’re pretty busy doing their audits and all the other, and we just had the October 15th deadline, right? So I have to think that they’re pretty busy. Michael, great conversation, really important information. I think a lot of people maybe aren’t aware. I wasn’t certainly aware how these brackets get adjusted. Thank you so much for joining us, and we look forward to having you back on the program again very soon, sir. Michael Henaghan, Managing Editor at Wolters Kluwer I’d be happy to be back. So it’s great being here. Thank you.
CryptoAlerta — análise de criptomoedas e mercado em tempo real