If your wages have risen over the last year, that's good news. But along with the additional cash, it's possible you may be in for an unpleasant tax surprise too.
Although wage increases may have helped your income keep pace with rising costs for everything from food to housing and auto repairs, a bigger paycheck may also bump you into a higher marginal tax bracket, in a phenomenon called tax-bracket creep.
Tax-bracket creep can be particularly pronounced during periods of high inflation when wages rise, pushing people into higher tax brackets. It can result in a double hit to your wallet as the rising cost of many common consumer items crimps budgets, while your extra pay could potentially increase your tax bill.
While the federal government adjusts marginal tax brackets for inflation each year, it does not make adjustments to numerous credits, deductions, exemptions, and surcharges, which can mean your effective tax rate could go up, whether you take the standard deduction or itemize.
For example, the net investment income tax (NIIT) on capital gains, dividends, and interest income has not been adjusted since it was enacted in 2013. It's an added 3.8% surtax on everything from home sales to interest paid on CDs and taxable bonds as well as dividend payouts if those things push your income past $200,000 for a single person and $250,000 for married couples. The NIIT is particularly worth paying attention to as house prices continue to rise, although they have grown more modestly in recent years, and as stock-market gains have increased the value of many portfolio holdings.
Here are 9 steps to consider now to help you reduce your tax bill and reduce tax-bracket creep this year and next.
1. Maximize retirement contributions
Fortunately, you can reduce your taxable income dollar-for-dollar with yearly contributions to your 401(k), traditional IRA, and other retirement accounts.
People who have access to a workplace retirement plan can contribute up to the maximum $24,500 in 2026. People age 50 and older can make catch-up contributions of $8,000 in 2026. Also in 2026, those between the ages of 60 and 63 can make catch-up contributions of $11,250 in place of the $8,000 limit.
The annual contribution limit for IRAs, including Roth and traditional IRAs, is $7,500 for 2026. If you're age 50 or older, you can contribute an additional $1,100 for the current tax year.
Note: Starting in 2026, employees with 2025 wages that exceed $150,000 must make catch-up contributions to their workplace plans via Roth. If a Roth option is not available, these individuals would not be able to make catch-up contributions to their workplace plans. Accordingly, Roth catch-up contributions would not result in a reduction in taxable income for these individuals, as well as those who choose to elect Roth catch-up contributions independently of this requirement.
Find out more in Viewpoints: Understanding new Roth 401(k) catch-up rules
The tables below can help you figure out how much of your traditional IRA contribution you may be able to deduct based on your income, tax-filing status, and your and your spouse's access to a workplace retirement plan.
Traditional IRA deduction limits
| 2025 IRA deduction limit — You are covered by a retirement plan at work | ||
|---|---|---|
| Filing status | Modified adjusted gross income (MAGI) | Deduction limit |
| Single individuals | ≤ $79,000 | Full deduction up to the amount of your contribution limit |
| > $79,000 but < $89,000 | Partial deduction | |
| ≥ $89,000 | No deduction | |
| Married (filing joint returns) | ≤ $126,000 | Full deduction up to the amount of your contribution limit |
| > $126,000 but < $146,000 | Partial deduction | |
| ≥ $146,000 | No deduction | |
| Married (filing separately)1 | < $10,000 | Partial deduction |
| ≥ $10,000 | No deduction | |
Source: "401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000," Internal Revenue Service, November 1, 2024.
| 2025 IRA deduction limits — You are NOT covered by a retirement plan at work | ||
|---|---|---|
| Filing status | Modified adjusted gross income (MAGI) | Deduction limit |
| Single, head of household, or qualifying widow(er) | Any amount | Full deduction up to the amount of your contribution limit |
| Married filing jointly with a spouse who is not covered by a plan at work | Any amount | Full deduction up to the amount of your contribution limit |
| Married filing jointly with a spouse who is covered by a plan at work | $236,000 or less | Full deduction up to the amount of your contribution limit |
| > $236,000 but < $246,000 | Partial deduction | |
| ≥ $246,000 or more | No deduction | |
| Married filing separately with a spouse who is covered by a plan at work | < $10,000 | Partial deduction |
| ≥ $10,000 | No deduction | |
Source: "401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000," Internal Revenue Service, November 1, 2024.
| 2026 IRA deduction limit — You are covered by a retirement plan at work | ||
|---|---|---|
| Filing status | Modified adjusted gross income (MAGI) | Deduction limit |
| Single individuals | ≤ $81,000 | Full deduction up to the amount of your contribution limit |
| > $81,000 but < $91,000 | Partial deduction | |
| ≥ $91,000 | No deduction | |
| Married (filing joint returns) | ≤ $129,000 | Full deduction up to the amount of your contribution limit |
| > $129,000 but < $149,000 | Partial deduction | |
| ≥ $149,000 | No deduction | |
| Married (filing separately)1 | < $10,000 | Partial deduction |
| ≥ $10,000 | No deduction | |
Source: "401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500," Internal Revenue Service, November 13, 2025.
| 2026 IRA deduction limits — You are NOT covered by a retirement plan at work | ||
|---|---|---|
| Filing status | Modified adjusted gross income (MAGI) | Deduction limit |
| Single, head of household, or qualifying widow(er) | Any amount | Full deduction up to the amount of your contribution limit |
| Married filing jointly with a spouse who is not covered by a plan at work | Any amount | Full deduction up to the amount of your contribution limit |
| Married filing jointly with a spouse who is covered by a plan at work | $242,000 or less | Full deduction up to the amount of your contribution limit |
| > $242,000 but < $252,000 | Partial deduction | |
| ≥ $252,000 or more | No deduction | |
| Married filing separately with a spouse who is covered by a plan at work | < $10,000 | Partial deduction |
| ≥ $10,000 | No deduction | |
Source: "401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500," Internal Revenue Service, November 13, 2025.
2. Remember your health savings account (HSA)
If you're eligible to contribute to an HSA because you have a high-deductible health plan, contribution limits are $4,300 for individuals and $8,550 for families for 2025, with an additional $1,000 in catch-up contributions for those over 55 and not enrolled in Medicare. In 2026, you can contribute up to $4,400 if you are covered by a high-deductible health plan just for yourself, or $8,750 if you have coverage for your family. If both spouses are covered by a family high-deductible health plan and share an HSA, they are eligible for one catch-up contribution of $1,000 if one of them is 55 or older and not enrolled in Medicare, resulting in a $9,750 limit. If both are 55 or older and not enrolled in Medicare, they must make their catch-up contributions in separate HSAs, resulting in a $10,750 limit.
Good to know: Public marketplace bronze and catastrophic plans are now HSA-eligible. As a result, you can potentially use your HSA to cover qualified medical expenses incurred in these lower-premium plans, such as for doctor visits, screenings and diagnostic tests, and prescription medications.
3. New or expanded deductions
New tax legislation passed in July 2025 created several 4-year provisions that could help reduce your taxable income.
New senior deductionFor tax years 2025 through 2028 people who are age 65 and older will get an additional $6,000 deduction that begins to phase out at incomes over $75,000 for single filers and $150,000 for joint filers. You don’t have to itemize to claim it, and it could be useful for people who are still working or who have increased income due to a Roth conversion or from some other taxable event. Note: For those who take the standard deduction, the enhanced deduction would be in addition to the $2,000 that single filers and $3,200 ($1,600 each) that married filers are currently able to deduct if they are 65 or older.
SALT deductionIf you itemize, the new tax law raises the state and local tax (SALT) deduction cap to $40,000 from $10,000 for single and joint filers—but with several caveats: The full deduction phases out for filers with modified adjusted gross income above $500,000 ($250,000 in the case of a married individual filing separately), and reverts to $10,000 for incomes of $600,000 and above. While the deduction and the phase-out levels will increase by 1% a year, these changes are in effect through 2029, after which point the cap reverts to $10,000. For married couples who file separately, the deduction increases to $20,000 and returns to its previous level of $5,000 in 2030. Good to know: Starting in 2026, the value of itemized deductions for those in the 37% tax bracket will be capped at 35%, or approximately 35 cents for every dollar they deduct.
Although the increased SALT deduction is likely to help wealthier taxpayers in high-tax states the most, particularly if they have a lot to itemize in addition to high state income and property taxes, these changes may also make it worthwhile for more people who used to take the standard deduction to consider itemizing.
4. Tax-loss harvesting
You might also want to consider year-round tax-loss harvesting where you use realized losses to offset realized gains elsewhere. Additionally, if you have a net loss after offsetting all your realized gains for the year, you can offset up to $3,000 of ordinary income depending on filing status. Net losses in excess of this can be carried forward to future years.
If you've got investments that are below their cost basis, and there's another investment that's similar (but not a substantially identical security), you could use it to replace the sold asset without a material impact to your investment plan. Consult your tax advisor about your situation and beware of the wash-sale rule.
5. Make full use of asset location
You're likely to have different types of accounts that can be aligned with specific financial goals. Some accounts, like taxable brokerage accounts, are subject to income or capital gains taxes every year on any income earned or capital gains realized, while others (retirement accounts) can have tax advantages, such as tax-deferral or tax-exempt withdrawals (Roth accounts).2 At the same time, some types of investments—think bonds, bond funds, and high-turnover, actively managed stock mutual funds—can have bigger tax consequences. Consider putting the higher-tax investments in accounts with more favorable tax treatment, such as tax-deferral or tax-exemption.
Find out more about tax-smart asset location in Viewpoints: Are you invested in the right kind of accounts?
6. Make the best use of a Roth conversion
A Roth conversion could be a valuable longer-term strategy to reduce taxes. Since it typically means taxable withdrawals from a traditional IRA, it won’t reduce your taxes this year or in subsequent years when you might do a conversion. However, you aren't required to take money out of a Roth IRA once the funds are in the account. That’s in contrast to a traditional IRA, where required minimum distributions (RMDs) must begin at age 73.
Additionally, once funds are in the Roth account, withdrawals aren't subject to taxes when you do take funds out, assuming you've met all conditions for the account, including the 5-year aging rule and are 59½ years old or older or have met some other exemption.3 Additionally, a conversion may reduce the value of the traditional IRA from which the funds were transferred, which could in turn lower RMDs from the traditional IRA.
7. Deductions for charitable contributions
If you have extra money to give this year, you may be willing to donate to charity. Charitable contributions are generally tax-deductible but require that you itemize deductions, as opposed to taking the standard deduction ($15,750 for single filers and $31,500 for those who are married filing jointly in 2025, rising to $16,100 and $32,200 in tax-year 2026). If your donation amount, along with your other itemized deductions, typically falls below the standard deduction you might consider bunching, which involves concentrating charitable deductions in a single year, and skipping the following year, or even several years. The following year, you likely wouldn't claim charitable deductions, but you'd still qualify for the standard deduction. And if you put your contributions into a donor-advised fund, you can take the charitable deduction in 2025, but spread your giving out over many years. If you want to itemize, this strategy can help. Itemizers can also donate appreciated assets held longer than one year to a qualified public charity and deduct the fair market value of the asset without paying capital gains tax.
Similarly, itemizers can deduct cash contributions as well as property—think the bookshelf you donate to your local school. Deducting charitable contributions may be subject to adjusted gross income (AGI) limits depending on the receiving charity and what you donated.4
Good to know: As of tax-year 2026 a reinstated charitable deduction allows non-itemizers to deduct cash donations to charity—up to $1,000 for single filers or $2,000 for married couples filing jointly. However, there is a new 0.5% income floor on itemized charitable deductions in 2026, so you will only be able to deduct charitable gifts that exceed this amount. Additionally, high earners in the top tax bracket (37%) will see the value of their deduction capped at an effective rate of 35%, so a $1,000 donation that might have resulted in tax savings of $370 in past years may now result in a $350 reduction (assuming the 0.5% AGI floor has already been met).
Find out more in Viewpoints: 3 big changes to charitable giving.
8. Qualified charitable distributions (QCDs)
For individuals in retirement who have to take required minimum distributions (RMDs), donating to charity can help reduce tax-bracket creep. In 2026, you can make a QCD from an IRA of up to $111,000 per individual (or $222,000 total if you're married and filing jointly), as long as the charity receives your donation by December 31. The money you donate is not deductible, but it's not subject to federal taxes, helps to offset your RMDs or, if it equals or exceeds your required distribution, qualifies as your RMD for the year, and you can use one even if you don't itemize. QCDs are also allowable starting at age 70½, so you don't have to wait until RMDs begin to take advantage of one.
Important to know: Payment must be made directly to a charity and not all charities qualify.
9. Consider deferring payouts and payments to next year
Thinking ahead to year-end, if you expect to sell a house, collect severance from a job after a layoff, or sell anything of value where you expect a taxable gain, it's worth considering whether you can collect the money the following year if you think the additional income will push you into a higher tax bracket, or you expect to be in a lower tax bracket the following year. Similarly, if you plan to sell stock that has increased in value, you could think about splitting the sale over 2 years if the full amount will push you into another tax bracket, or subject you to the NIIT surtax. Relatedly, if you've done contract work in addition to your regular job to make ends meet, you might consider delaying payment until the following tax year if the extra income will push you into a higher tax bracket.
Important to know: Any capital improvements to your home can increase the property’s cost basis and thus reduce capital gains, so it’s important to make sure you have good records of any improvements you've made. You also can exclude up to $250,000 ($500,000 for couples who are married filing jointly) of gains from income if you owned and used your home as your main home for a period aggregating at least 2 years out of the 5 years prior to its date of sale. If you sold another home and used the exemption in the prior 2 years, then you cannot claim it again. There are certain exceptions to these eligibility tests.
The good news is inflation continues to show signs of easing this year, and federal tax brackets (and the standard deduction) will still be adjusted upward again this fall to compensate for the higher cost of living. Nevertheless, it's still a smart idea to keep tax-reduction strategies in your back pocket to meet the potential burden of tax-bracket creep. As always, consult with your tax advisor or a financial professional to create a plan that works for you.