New Update: Healthcare Costs Increasing by Over 60% in Some States. Will you be impacted?

What American Electric Power Employees Should Know About 2025 and 2026 Federal Tax Brackets

Healthcare Provider Update: Healthcare Provider for American Electric Power American Electric Power (AEP) typically collaborates with major health insurance providers for its employee healthcare plans, frequently partnering with organizations such as Anthem Blue Cross Blue Shield. This partnership allows AEP to offer comprehensive healthcare benefits to its employees, including access to various medical services, preventive care, and wellness programs. Potential Healthcare Cost Increases in 2026 Looking ahead to 2026, healthcare costs are projected to rise substantially, driven by a perfect storm of factors. Premiums for Affordable Care Act (ACA) Marketplace plans are expected to see median increases of around 20%, with some states experiencing hikes exceeding 60%. A significant contributor to these increases is the potential expiration of enhanced federal premium subsidies, which could result in more than 24 million enrollees facing out-of-pocket costs rising by over 75%. The combination of rising medical costs, increased demand for healthcare services, and insurer rate hikes paints a concerning picture for consumers relying on these plans in the coming year. Click here to learn more

'American Electric Power employees can benefit from understanding how progressive tax brackets influence long-term income planning,' explains Paul Bergeron, a representative of The Retirement Group, a division of Wealth Enhancement. 'That's why I encourage individuals to review these rules carefully and consult a qualified tax professional for guidance tailored to their situation.'

'American Electric Power employees can gain clarity in their retirement planning by recognizing how federal tax brackets shape income decisions,' says Tyson Mavar, a representative of The Retirement Group, a division of Wealth Enhancement. 'I encourage individuals to work with a qualified tax professional to evaluate how these rules may apply to their circumstances.'

In this article, we will discuss:

How federal tax brackets work and why they matter.
How taxable income is calculated for retirement planning.
Strategies that may help reduce taxable income.

Navigating taxes can feel more manageable when you understand how your income is allocated to various federal tax bands. Income tax is calculated by the IRS using seven brackets that adjust annually for inflation. You do not pay the same rate on every dollar you earn because income is taxed progressively. Instead, your taxable income is divided into ranges, each taxed at its own rate. American Electric Power employees can benefit from understanding how their tax brackets may change as they prepare for retirement income decisions.

Below are the IRS’s official 2025 and 2026 bracket tables, along with an explanation of how federal brackets work. The Retirement Group can help review how these rules may influence your long-term income strategy. You can reach us at (800) 900-5867 .

How Federal Tax Brackets Work

The seven federal income tax brackets in the United States are 10%, 12%, 22%, 24%, 32%, 35%, and 37% .

This progressive structure means that each additional portion of income is taxed according to the next bracket as taxable income increases, which may be important for American Electric Power employees reviewing future retirement income.

Your marginal tax rate applies to the last dollar of taxable income you earn. Your effective tax rate represents the overall percentage of income paid toward federal tax after all brackets are applied.

Your tax brackets also depend on the filing status you choose:

- Single
- Married filing jointly
- Married filing separately
- Head of household (single with a qualifying dependent)

The IRS adjusts these brackets every year to account for inflation.

How Your Taxable Income Is Calculated

To determine taxable income, start by adding all sources of taxable income, such as interest, qualifying pre-2019 alimony, tips, bonuses, and both employment and freelance earnings.

Next, subtract items already included on your W-2, such as contributions to a health savings account (HSA) or retirement plan contributions through your employer (401(k)).

Then subtract either your itemized deductions or the standard deduction—whichever applies. The remaining amount is your taxable income.

A Federal Effective Tax Rate Example

If a married couple with $150,000 in total income files jointly in 2025 and takes the standard deduction of $31,500 , their taxable income becomes $118,500 . Their federal tax calculation would look like this:

- 10% on the first $23,850 → $2,385
- 12% on $23,851 to $96,950 → $8,772
- 22% on the remaining amount up to $118,500 → $4,741

- Total federal income tax: $15,898

- Effective tax rate: approximately 10.6%

(All bracket values sourced from IRS inflation adjustment notices above.)

Possible Strategies to Lower Taxable Income

These approaches may help reduce taxable income and potentially push you into a lower tax bracket:

- Contributing to traditional IRAs or employer retirement plans
- Adding funds to an HSA if enrolled in a qualifying high-deductible health plan
- Using tax-loss harvesting in taxable brokerage accounts
- Considering the timing of controlled income, such as bonuses or freelance payments

Starting in 2026, taxpayers who do not itemize may deduct up to $1,000 (single filers) or $2,000 (married filing jointly) for eligible cash charitable contributions.

Do You Have Questions About How Taxes Influence Retirement?

Federal tax brackets play a key role in retirement planning, especially when reviewing withdrawal timing, Social Security decisions, and income sources. American Electric Power employees can explore how tax rules fit into their broader retirement planning with guidance from The Retirement Group .

For personalized retirement discussions, call us at (800) 900-5867 .

Featured Video

Articles you may find interesting:

Sources:

1. Internal Revenue Service. Revenue Procedure 2024-40. 22 Oct. 2024,
https://www.irs.gov/pub/irs-drop/rp-24-40.pdf . Accessed 8 Dec. 2025.

2. Tax Policy Center. “How Do Federal Income Tax Rates Work?” Tax Policy Center Briefing Book , Jan. 2024,
https://www.taxpolicycenter.org/briefing-book/how-do-federal-income-tax-rates-work . Accessed 8 Dec. 2025.

3. Financial Industry Regulatory Authority (FINRA). “Retirement Accounts.” FINRA for Investors ,
https://www.finra.org/investors/investing/investment-accounts/retirement-accounts . Accessed 8 Dec. 2025.

4. Adams, Hayden. “Using Tax Brackets to Manage Your Taxable Income.” Charles Schwab , 12 Feb. 2025,
https://www.schwab.com/learn/story/using-tax-brackets-to-manage-your-taxable-income . Accessed 8 Dec. 2025.

5. Vanguard. “Year-End Tax-Savings Tips.” Vanguard Investor Resources & Education , 26 Aug. 2025,
https://investor.vanguard.com/investor-resources-education/article/year-end-tax-tips . Accessed 8 Dec. 2025.

How does the AEP System Retirement Savings Plan compare to other retirement plans offered by AEP, and what are the key features that employees should consider when deciding how to allocate their contributions? In particular, how might AEP employees maximize their benefits through the different contribution types available under the AEP System Retirement Savings Plan?

The AEP System Retirement Savings Plan (RSP) is a qualified 401(k) plan that allows employees to contribute up to 50% of their eligible compensation on a pre-tax, after-tax, or Roth 401(k) basis. AEP matches 100% of the first 1% and 70% of the next 5% of employee contributions, making it a valuable tool for maximizing retirement savings. Employees can select from 19 investment options and a self-directed brokerage account to tailor their portfolios. This plan compares favorably to other AEP retirement plans by offering flexibility in contributions and matching opportunities(KPCO_R_KPSC_1_72_Attach…).

What are the eligibility requirements for the AEP Supplemental Benefit Plan for AEP employees, and how does this plan provide benefits that exceed the limitations imposed by the IRS? AEP employees who are considering this plan need to understand how the plan's unique features may impact their retirement planning strategies.

The AEP Supplemental Benefit Plan is a nonqualified defined benefit plan designed for employees whose compensation exceeds IRS limits. It provides benefits beyond those offered under the AEP Retirement Plan by including additional years of service and incentive pay. This plan disregards IRS limits on annual compensation and benefits, allowing participants to receive higher benefits. Employees should consider how these enhanced features can significantly boost their retirement income when planning their strategies(KPCO_R_KPSC_1_72_Attach…).

Can you explain how the Incentive Compensation Deferral Plan functions for eligible AEP employees and what specific conditions need to be met for participating in this plan? Furthermore, AEP employees should be aware of the implications of deferring a portion of their compensation and how it affects their financial planning during retirement.

The AEP Incentive Compensation Deferral Plan allows eligible employees to defer up to 80% of their vested performance units. This plan does not offer matching contributions but provides investment options similar to those in the qualified RSP. Employees may not withdraw funds until termination of employment, though a single pre-2005 contribution withdrawal is permitted, subject to a 10% penalty. Employees need to consider how deferring compensation affects their cash flow and long-term retirement plans(KPCO_R_KPSC_1_72_Attach…).

How can AEP employees achieve their retirement savings goals through the other Voluntary Deferred Compensation Plans offered by AEP? In addressing this question, it would be essential to consider the specific benefits and potential drawbacks of these plans for AEP employees in terms of financial security during retirement.

AEP's other Voluntary Deferred Compensation Plans allow eligible participants to defer a portion of their salary and incentive compensation. These plans are unfunded and do not offer employer contributions, making them ideal for employees seeking additional tax-advantaged retirement savings. However, since they are not funded by the company, participants assume some risk, and the plans may not provide immediate financial security(KPCO_R_KPSC_1_72_Attach…).

What options are available for AEP employees to withdraw funds from their accounts under the AEP System Retirement Plan, and how do these options compare to those offered by the AEP System Retirement Savings Plan? AEP employees need to be informed about these withdrawal options to make effective plans for their post-retirement needs.

Under the AEP System Retirement Plan, employees can access their funds upon retirement or termination, with options including lump-sum payments or annuities. The AEP System Retirement Savings Plan offers more flexibility with in-service withdrawals and various distribution options. Employees should carefully compare these withdrawal choices to align with their retirement needs and tax considerations(KPCO_R_KPSC_1_72_Attach…).

In what scenarios might AEP employees benefit from being grandfathered into their retirement plans, and how does this affect their retirement benefits? A comprehensive understanding of the implications of being grandfathered can provide significant advantages for eligible AEP employees as they prepare for retirement.

AEP employees grandfathered into older retirement plans, such as those employed before 12/31/2000, benefit from higher retirement payouts under previous pension formulas. This offers a significant advantage, as employees can receive more favorable terms compared to newer cash balance formulas. Understanding these grandfathered benefits can help eligible employees plan for a more secure retirement(KPCO_R_KPSC_1_72_Attach…).

How can AEP employees take advantage of the matching contributions offered under the AEP System Retirement Savings Plan and what strategies can be implemented to maximize these benefits? Understanding the contribution limits and matching algorithms of AEP is crucial for employees aiming to enhance their retirement savings.

AEP employees can maximize matching contributions under the AEP System Retirement Savings Plan by contributing at least 6% of their compensation, receiving a 100% match on the first 1% and 70% on the next 5%. To enhance savings, employees should ensure they are contributing enough to take full advantage of the company's match, effectively doubling a portion of their contributions(KPCO_R_KPSC_1_72_Attach…).

What are the key considerations for AEP employees regarding the investment options available in the AEP System Retirement Savings Plan, and how can they tailor their portfolios to align with their long-term financial goals? Employees should be equipped with the knowledge to make informed investment decisions that influence their retirement outcomes.

The AEP System Retirement Savings Plan offers 19 investment options and a self-directed brokerage account, providing employees with a variety of choices to build their portfolios. Employees should evaluate these options based on their risk tolerance and long-term financial goals, aligning their investments with their retirement timeline and desired outcomes(KPCO_R_KPSC_1_72_Attach…).

As AEP transitions into more complex retirement options, what resources are available for employees seeking additional assistance with their benefits, particularly regarding the complexities of the AEP Supplemental Retirement Savings Plan? Itâ€™s essential for AEP employees to know where and how to obtain accurate support for navigating their retirement plans.

As AEP introduces more complex retirement options, employees can access resources such as financial advisors, internal retirement planning tools, and educational webinars to navigate their benefits. Understanding these resources can help employees make informed decisions, particularly when dealing with the intricacies of the AEP Supplemental Retirement Savings Plan(KPCO_R_KPSC_1_72_Attach…).

How can AEP employees contact the company for more information regarding their retirement benefits and plans? Knowing the right channels for communication is important for AEP employees to gain clarity and guidance on their retirement options and to address any specific inquiries or uncertainties they may have about their benefits.

AEP employees can contact the company’s HR department or use online portals to access information about their retirement benefits and plans. Timely communication through these channels ensures employees receive support and clarity regarding any concerns or inquiries related to their retirement options(KPCO_R_KPSC_1_72_Attach…).

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.

American Electric Power (AEP) offers a "cash balance" pension plan called the AEP Retirement Plan. Employees are eligible after one year and fully vested after three years. The plan grows with annual interest and pay credits based on the employee’s salary. AEP also offers a 401(k) plan, matching 75% of contributions up to 6% of salary, with immediate vesting. The 401(k) plan includes traditional and Roth options, providing employees with various tax advantages. [Source: AEP Benefits Handbook, 2022, p. 15]

News: AEP announced a voluntary severance program and the layoff of 270 workers, including 170 in Ohio, to streamline operations. Additionally, AEP reaffirmed its 2024 earnings guidance and retained its retail energy business. Importance: These changes reflect AEP's strategic response to economic pressures, emphasizing cost management and operational efficiency. In the current investment climate, such restructuring is crucial for maintaining shareholder value. The layoffs and operational changes also highlight the impact of regulatory and political dynamics on utility companies (The Layoff).

American Electric Power (AEP) grants stock options and RSUs to incentivize employees. Stock options allow employees to buy shares at a set price after vesting, while RSUs are awarded with vesting conditions such as tenure or performance. In 2022, AEP focused on RSUs to retain talent and align with strategic goals. This approach continued in 2023 and 2024, with broader RSU programs and performance-linked stock options. Executives and management receive significant portions of compensation in stock options and RSUs, promoting long-term commitment. [Source: AEP Annual Reports 2022-2024, p. 48]

In 2022, American Electric Power updated its healthcare benefits with improved access to specialized care and new wellness initiatives. The company expanded telehealth services and mental health resources in 2023. By 2024, American Electric Power continued to emphasize comprehensive healthcare coverage and innovative health management solutions. The company aimed to integrate new technologies and maintain strong employee support programs. Their strategy focused on addressing the evolving needs of their workforce. American Electric Power's updates were designed to enhance overall employee well-being and engagement.

Additional Articles

Check Out Articles for American Electric Power employees

For more information you can reach the plan administrator for American Electric Power at 7 longs peak dr Broomfield, CO 80021; or by calling them at 1-303-939-6100.

https://aep.com/investors/financialreportsandreleases/AnnualReportsProxies/AEP_AnnualReport_2022.pdf - Page 42 https://aep.com/investors/financialreportsandreleases/AnnualReportsProxies/AEP_AnnualReport_2023.pdf - Page 39 https://aep.com/about/businesses/AEP_PensionPlan2024.pdf - Page 23 https://aep.com/about/businesses/AEP_401kPlan2023.pdf - Page 17 https://aep.com/about/businesses/AEP_RSUs2022.pdf - Page 14 https://aep.com/about/businesses/AEP_HealthcareOptions2024.pdf - Page 11 https://aep.com/about/businesses/AEP_StockOptions2023.pdf - Page 19 https://aep.com/about/businesses/AEP_AnnualReport2022.pdf - Page 28 https://aep.com/about/businesses/AEP_EmployeeHandbook2023.pdf - Page 32 https://aep.com/about/businesses/AEP_AnnualReport2024.pdf - Page 21