As inflation has cooled down, taxpayers can expect to see relatively slight changes ahead in the annual inflation adjustment for tax brackets and some tax breaks for 2025.
The Internal Revenue Service on Tuesday announced the annual inflation adjustments for standard deductions, marginal tax rates, earned income tax credits, adoption credits and more for 2025.
Overall, for example, we're talking about roughly a 2.7% inflation-related adjustment that would apply to the standard deduction.
The standard deduction will go up to $15,000 for 2025 tax returns — up $400 from 2024 — for single taxpayers and married individuals filing separately.
The standard deduction climbs to $30,000 — up $800 from 2024 — for married couples filing jointly.
For heads of households, the standard deduction will be $22,500 for tax year 2024 — up $600 from 2024.
About 90% of taxpayers claim the standard deduction now and do not itemize deductions.
In general, inflation adjustments won't mean that you can look forward to a whooper of a tax refund. But such adjustments mean you're not going to get socked with a higher tax bill simply because inflation took off like a rocket.
Without such adjustments, the impact of inflation would be far worse on taxes. Inflation's impact on tax brackets in 2025 will be modest after more sizable inflation-adjusted changes of roughly 5.4% in 2024 and 7.1% in 2023.
“Each year select elements in the tax code are adjusted by law to reflect changes to the current economy," said Mark Steber, chief tax information officer for Jackson Hewitt.
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"Typically," he said, "inflation adjustments can impact tax income in a variety of ways from changing filing brackets to larger standard deductions." "
These new figures would apply when you file your 2025 federal income tax return in 2026.
All things being equal, taxpayers who have the same income in 2025 as in 2024 should see no increase in taxes or a decrease in taxes after the IRS inflation adjustments, according to Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting in Riverwoods, Illinois.
“Increases in the standard deduction will also tend to continue to make the standard deduction more attractive than itemized deductions for many taxpayers,” Luscombe said.
Luscombe noted that the latest IRS inflation adjustments for 2025 are based on a consumer price index number of 2.88%. But due to rounding for various tax figures, the actual amount of the adjustment will not always precisely reflect that figure.