President Donald Trump is no stranger to big changes in tax policy, and one of his proposals is perhaps his most audacious yet: a proposed elimination of the federal income tax. While this hasn’t come to pass yet, it’s possible that he could try to find a way to make it work.
Find Out: Trump Wants To Eliminate Income Taxes: Here’s What That Would Mean for the Economy and Your Wallet
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Federal taxes take the biggest bite out of your earned income because they pay for many important programs and services. Yet, who wouldn’t enjoy being free of this huge chunk of tax? Though people at any income level could see relief if they didn’t have to pay federal income tax, it really starts to pay off at higher income levels. We’ll break down how much someone earning $250,000 could actually keep if this policy happened.
Current State of Income Taxes
The U.S. tax code uses a progressive tax system, where your income is taxed in brackets. That means no one pays a flat rate, instead the first portion is taxed at 10%, the next at 12% and so on. Everyone also can take the standard deduction ($15,000 for single filers, $22,500 for heads of household, $30,000 for couples) to lower taxable income — unless they want to itemize deductions.
For a $250,000 household:
- Single filer: After deductions, about $235,400 is taxable, resulting in roughly $53,000 in federal income tax.
- Married filing jointly: About $220,800 is taxable, leading to around $39,000 owed.
To get more granular so you can see how this looks at the bracket level, here’s a better look:
For a single person filing in 2025, here is how you’re taxed by income bracket (rounded):
- The first $11,925 at 10% = $1,192
- $11,926-$48,475 at 12% = $4,386
- $48,476-$103,350 at 22% = $12,072
- $103,351-$197,300 at 24% = $22,548
- $197,301-$235,000 at 32% = $12,064
Total tax = Around $52,263
For a married couple filing jointly in 2025, here is how you’re taxed by income bracket (rounded):
- The first $23,850 at 10% = $2,385
- $23,851-$96,950 at 12% = $8,772
- $96,951-$206,700 at 22% = $24,145
- $206,701-$220,000 at 24% = $3,192
Total tax: Around $38,494
That’s tens of thousands of dollars currently sent to the IRS that most households could keep if income taxes were eliminated.
Learn More: What Trump’s New Tax Law Means for Upper-Middle-Class Families in 2025
But Where Does the Money Come From?
While all that money back in your pocket sounds great, there’s a problem. Your federal tax income goes to pay for a lot of things that are essential to every American’s lives, such as highways, law enforcement, social services, parks systems, healthcare and more.
Without your taxes paying into the federal coffers, that money would have to come from somewhere else. Some possibilities could include a national sales tax, higher payroll taxes or even cuts to essential government programs like Medicare and Social Security.
Who Wins, Who Loses?
While this all sounds potentially great, note that a high earner, making $250,000, is going to see a more significant savings than a lower earner.
For example, someone earning $80,000 per year would also have more money in their pockets, but not nearly as much:
- Single filer: Currently pays about $9,200 in federal income tax. If income taxes were eliminated, that’s $9,200 more take-home pay per year.
- Married filing jointly: Currently pays about $5,500 in federal income tax. Without income tax, that’s an extra $5,500 in their pocket annually.
While you can argue that equity isn’t an issue, since it is the earner’s income either way, inequity could enter the chat if a new method for funding essential services comes to pass. Then, lower earners could end up footing a larger proportion of that “bill.”
What Would You Do With the Money?
If Americans did get this tax windfall by eliminating federal income taxes, it would be a rare opportunity to really get ahead — saving and investing extra money. Here are a few things you could do with that extra cash:
- Pay down high-interest debt.
- Boost retirement contributions.
- Build a larger emergency fund.
- Consider tax-advantaged investing strategies (since other taxes could rise).
Would It Really Be Worth It?
While eliminating federal income taxes would give someone earning $250,000 a dramatic short-term pay boost, the funds for essential services would have to come from somewhere. New costs could show up in other areas.
Instead of banking on a theoretical change in your taxes, it’s best to focus on what you can control today to make the most of your paycheck, such as taking maximum tax deductions and credits and engaging in smart financial planning.
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This article originally appeared on GOBankingRates.com: Trump Wants To Eliminate Income Taxes: Here’s How Much Extra You’d Take Home If You Make $250,000 a Year
