Why You Paid More in Taxes This Year, Unless You Earned More Than $361,400

Let’s get to the point. Straight talk about the taxes we paid this year. Not the political spin. Not the sound bites. The money you actually spent.

If your household made less than about $361,400 in 2025, there’s a strong chance you paid more in total taxes this year than last year. That could be true even if you saw a slight drop in your income tax rate on paper. And the main reason is something that doesn't show up directly on your tax return: tariffs.

According to the Institute on Taxation and Economic Policy, most Americans outside the top 5 percent income earners saw their overall tax burden rise once you factor in tariff costs and other policy changes. The only group that clearly comes out ahead is higher-income households, especially those above roughly $361,400.

What Politicians Call a Tax Cut Is Not the Whole Story

The One Big Beautiful Bill Act extended and made permanent several tax cuts that were previously scheduled to expire. There were also targeted deductions for things like tips, overtime, and certain types of interest.

Those provisions sound helpful. And for some households, they are.

But they represent only a small share of the overall tax changes. Meanwhile, the largest tax increase came in the form of tariffs. The Institute on Taxation and Economic Policy found that these tariffs amount to the largest tax increase as a share of the economy since 1982.

That matters because tariffs raise prices on imported goods. Businesses pay the tariff at the port, but they pass those higher costs on to consumers. That means you pay more at the register.

So even if your income tax rate nudged downward, the total amount of money leaving your household likely increased.

Tariffs Are a Regressive Tax

Here is the key concept most people do not hear explained clearly. Tariffs function as a regressive tax.

A progressive tax system asks higher earners to pay a higher percentage of their income. The federal income tax is designed that way.

A regressive tax does the opposite. It takes a larger percentage of income from people who earn less.

Imagine two families buying the same imported refrigerator. The tariff-driven price increase is the same for both households. But if one family earns $50,000 a year and the other earns $400,000, the extra cost represents a much larger share of the lower-earning family's income.

Lower and middle-income households spend a larger share of their earnings on goods and essentials. When prices rise because of tariffs, those households feel the squeeze more deeply. Higher-income households may spend more dollars overall, but the percentage of their income affected is smaller.

Modern Husbands Board Member Dr. Abdullah Al Bahrani explained regressive taxation in more detail in the context of Kentucky state taxes in his post, From Income Tax to Sales Tax: What Kentucky Is Really Changing. Below is an illustration from the post.

The Institute on Taxation and Economic Policy found that when you combine the extended tax cuts with tariff costs, the net effect is clear. Most households below the top 5 percent paid more overall.

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Why This Feels So Frustrating

If you are in a dual-career household trying to manage money as a team, you may have felt confused this year.

You heard about tax cuts. You may have even seen a small reduction in your withholding. But then your grocery bill went up. Electronics cost more. Furniture is more. Every day purchases felt heavier. That is not in your head.

When tariffs raise consumer prices and operate as a regressive tax, regular families end up carrying more of the burden. According to the analysis, households earning roughly $361,400 or less did not see enough benefit from the extended tax cuts to offset the increased costs.

Meanwhile, the largest benefits flowed to the highest income households.

What This Means for Your Family

If your household income is below about $361,400, there is a strong likelihood that your total tax burden increased this year once everything is included.

That does not mean you failed. It does not mean you miscalculated. It means the structure of the tax and tariff system shifted the burden more toward households that rely heavily on earned income and everyday spending.

When you are making decisions about budgeting, saving, investing, and long-term planning as a couple, you need to see the full picture. It is not just about your marginal tax rate. It is about how policy affects your cost of living.

As a husband and as someone who works with couples every day, I believe financial clarity strengthens relationships. When something feels off in your budget, there is usually a reason. I shared some of these strategies in my post for Marketwatch: Trump's tariff loss is a win for your relationship. 

Of note is the fact that Trump might have lost his Tariff case in the Supreme Court, but he found a way around it and added a new 15% tariff. 

This year, unless you are in the top tier of earners, that reason likely was not your spending discipline. It was a shift toward a more regressive tax structure driven by tariffs and the distribution of tax benefits.

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