IRS 2025 Tax Brackets: What can you expect and how much could your end up paying?
According to Marca, Americans may see some tax relief in 2025, but it won’t be as significant as in recent years. Experts predict that federal income tax brackets will rise by about 2.8%, thanks to annual inflation adjustments by the IRS. While this adjustment offers some tax relief, it’s less than the larger adjustments seen in 2024 (5.4%) and 2023 (7.1%).
Understanding Inflation Adjustments and “Bracket Creep”
The IRS adjusts tax brackets annually to account for inflation, preventing what’s known as “bracket creep.” This term refers to a situation where rising wages due to inflation push taxpayers into higher tax brackets, even though their purchasing power and standard of living haven’t actually improved.
“The IRS adjusts a host of tax elements each year for inflation,” explains Mark Steber, Chief Tax Information Officer at Jackson Hewitt. “Otherwise, as people march through life and get raises for inflation, they could get pushed into higher tax brackets, and that would undercut any benefit from the raise.”
These adjustments are based on the chained Consumer Price Index (CPI), which more accurately reflects inflation by tracking changes in consumer spending habits. The predicted 2.8% adjustment for 2025 is a result of the cooling inflation rate, which has slowed significantly since its peak in 2022.
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What the 2.8% Tax Bracket Adjustment Means
Although the tax rates will remain the same, ranging from 10% to 37%, the income thresholds for each bracket will shift. This means that taxpayers will need to earn more in 2025 to fall into the same tax bracket as in previous years. For example, a single filer earning $48,000 in 2025 will face a top marginal tax rate of 12%, whereas, in 2024, that same income would be taxed at a 22% rate. This shift can lead to noticeable savings on your tax bill.
Standard Deduction Changes and Other Provisions
In addition to tax brackets, the standard deduction is also expected to be adjusted for inflation in 2025. The standard deduction, which lowers taxable income, is projected to rise to $30,000 for married couples filing jointly and $15,000 for single filers. This adjustment will help taxpayers by allowing more of their income to be shielded from taxation.
Tax Planning Tips for 2025
Though these changes won’t take effect until January 2025, Mark Steber suggests taxpayers use these projections for better tax planning. “It’s useful to look ahead at the projected inflation adjustments for 2025,” he advises. By anticipating changes in income and tax brackets, taxpayers can adjust their withholdings or consider contributing more to tax-advantaged accounts like 401(k)s or IRAs.
“With these inflationary projections, you can take a swipe at next year,” Steber says, helping taxpayers avoid any surprises when tax season arrives.
