President Donald Trump recently stated that his sweeping tariffs may bring in enough revenue to completely eliminate income taxes. The federal government currently gets around $3 trillion per year from income taxes. The idea would be to use tariff revenue to replace that $3 trillion, and allow Trump to eliminate income taxes altogether.
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Experts claim that this will cost American consumers — as the tariffs affect the price of imported goods. This means higher prices paid by Americans are what’s paying the $3 trillion bill.
And while Trump would lie to eliminate taxes, it’s up to Congress to actually change the laws. But if the stars aligned and Trump was actually able to eliminate income taxes somehow, how much extra would you take home if you made $125,000 a year?
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Your ‘Tax-Free’ Take-Home Pay in 2025
If you make $125,000 a year, you fall into a 24% tax bracket. But your income isn’t wholly taxed at 24% — but each tier of income you make pays a different rate (topping out at 24%. First example; your first $11,925 is taxed at 10%, $11,926 to $48,475 is taxed at 12%, $48,476 to $103,350 is taxed at 22%, and the rest of your income at 24%. When you average it all out, your effective tax rate on $125,000 in 2025, according to TaxAct’s Tax Bracket Calculator, is 15.4%.
That equates to $19,250 of extra take-home pay.
But this is only federal taxes — you’ll still owe 7.65% in Social Security and Medicare taxes (or 15.3% if self-employed.
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The Extra Money May Be Taxed Elsewhere
While an extra $19,000 sounds amazing on the surface, you need to consider where this tax savings is coming from. Tariffs make the cost of imported goods go up. In some cases, the tariff costs more than the materials and goods themselves, effectively doubling the cost of importing (or more).
According to the Tax Foundation, the average household will pay $2,100 more for the goods they buy in 2025. And major purchases like vehicles could cost thousands more than before — according to a study by Anderson Economic Group.
In some cases, foreign vehicles that are on the pricier side could cost up to $20,000 more than before tariffs were implemented. This may be a huge price shock.
If you truly only spend $2,000 or $3,000 more per year on goods because of tariffs, a $19,000 savings would still save you money. The problem is no one knows the totality of the price increases until after they happen, so the numbers could be much worse for you.
All this to say, Trump can’t simply eliminate federal income taxes, but tariffs are in place now. So you’ll end up paying more until there are incentives (which may or may not come) to offset the rising cost of goods in the future.
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Sources
TaxAct, “Tax Bracket Calculator.”
Tax Foundation, “Trump’s Reciprocal Tariff Calculations Are Nonsense, Will Punish Mutually Beneficial Trade.”
Anderson Economic Group, “Tariff Costs for U.S.-Assembled Vehicles Drop Under ‘Adjusted’ Policy.”
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 $125K a Year
