The Internal Revenue Service (IRS) on Tuesday announced its inflation adjustments to tax brackets and deductions for the 2025 tax year, potentially giving Americans a chance to increase their take-home pay next year.
Each year, the IRS updates the federal income tax bracket as well as the standard deduction and other tax policies to avoid a phenomenon known as "bracket creep," which occurs when taxpayers are pushed into higher tax brackets due to increasing income despite their purchasing power being unchanged or reduced because of high inflation.
While the IRS goes through the process of making inflation adjustments annually, the increases are more significant and impactful for taxpayers during periods of high inflation.
This year, the IRS is shifting brackets higher by about 2.75%. By comparison, last year's adjustment was about 5.4% – which reflects the elevated inflation that was prevailing in the U.S. economy in the preceding year in comparison with the past year.
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The higher thresholds for where various tax rates take effect could result in savings for millions of workers across all income brackets. Here's a look at the changes unveiled by the IRS that will take effect for the 2025 tax year and returns that are filed in 2026.
Standard deduction:
The standard deduction, which reduces the amount of income Americans must pay taxes on, is claimed by a majority of taxpayers.
It's set to increase by $400 to $15,000 for single taxpayers, while it will increase by $800 to $30,000 for married taxpayers who file returns jointly.
Heads of households will have a standard deduction of $22,500 for tax year 2025, up $600 from this year.
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Tax brackets for single individuals:
The IRS is increasing its tax brackets by about 2.75% for both individual and married filers across various income levels in tax year 2025:
10%: Taxable income up to $11,925
12%: Taxable income over $11,925
22%: Taxable income over $48,475
24%: Taxable income over $103,350
32%: Taxable income over $197,300
35%: Taxable income over $250,525
37%: Taxable income over $626,350
Tax brackets for joint filers:
10%: Taxable income up to $23,850
12%: Taxable income over $23,850
22%: Taxable income over $96,950
24%: Taxable income over $206,700
32%: Taxable income over $394,600
35%: Taxable income over $501,050
37%: Taxable income over $751,600
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