As inflation begins to stabilize, the IRS has announced its annual adjustments to tax brackets and other tax provisions for 2025. These changes, primarily aimed at preventing taxpayers from facing higher taxes due to inflation, include updates to standard deductions, marginal tax rates, earned income credits, and more.
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Modest Adjustments in Standard Deductions
For the 2025 tax year, standard deductions will see a slight increase:
- Single filers and married individuals filing separately: The standard deduction will rise to $15,000, an increase of $400 from 2024.
- Married couples filing jointly: Their deduction will increase to $30,000, up by $800.
- Heads of households: The deduction will climb to $22,500, up by $600.
With roughly 90% of taxpayers opting for the standard deduction rather than itemizing, these adjustments will affect a large portion of the population.
Why Inflation Adjustments Matter
Inflation adjustments, though small, are vital to ensuring that taxpayers aren’t unfairly penalized as prices rise. Without these annual updates, people could find themselves in higher tax brackets simply due to inflation, not because they earned more in real terms. This year’s adjustment comes in at around 2.7%, significantly lower than previous years, with adjustments of 5.4% in 2024 and 7.1% in 2023.
“These adjustments reflect changes in the economy and can impact everything from filing brackets to deductions.” Mark Steber, Chief Tax Information Officer at Jackson Hewitt,
According to Mark Steber, Chief Tax Information Officer at Jackson Hewitt, “These adjustments reflect changes in the economy and can impact everything from filing brackets to deductions.”
Tax Brackets See Minor Shifts
Tax brackets for 2025 will also be adjusted to reflect inflation. For example, a single filer earning over $48,475 will be in the 22% tax bracket, while that threshold was $47,150 in 2024. The lowest tax bracket (10%) will apply to incomes of $11,925 or less for single filers and $23,850 or less for married couples filing jointly.
Here’s a brief overview of the updated 2025 tax brackets:
- 10%: Single incomes of $11,925 or less, or $23,850 for joint filers.
- 12%: Incomes over $11,925 for singles, $23,850 for joint filers.
- 22%: Incomes over $48,475 for singles, $96,950 for joint filers.
- 24%: Incomes over $103,350 for singles, $206,700 for joint filers.
- 32%: Incomes over $197,300 for singles, $394,600 for joint filers.
- 35%: Incomes over $250,525 for singles, $501,050 for joint filers.
- 37%: The top rate applies to single incomes above $626,350, or $751,600 for joint filers.
Earned Income Tax Credit (EITC) Gets a Boost
For lower-income families, the Earned Income Tax Credit (EITC) is a critical tax break. The maximum EITC for 2025 will increase to $8,046 for families with three or more children, up from $7,830 in 2024. The thresholds for qualifying adjusted gross income (AGI) will also increase:
- Married couples with three or more children: Maximum AGI of $68,675 (up from $66,819).
- Single, head of household, and widowed filers: Maximum AGI of $61,555 (up from $59,899).
These changes aim to ease the burden for working families, ensuring that inflation doesn’t erode the value of the credit.
Other Notable Changes
In addition to adjustments in tax brackets and credits, the IRS announced several other inflation-related updates:
- Adoption Credit: The maximum credit for adopting a child with special needs will rise to $17,280 in 2025, up from $16,810 in 2024.
- Gift Tax Exclusion: The annual gift tax exclusion will increase to $19,000, up from $18,000 in 2024.
- Health Flexible Spending Accounts (FSAs): Employee salary reductions for health FSAs will see a slight increase to $3,300, up by $100 from 2024.
What This Means for Taxpayers
While these inflation adjustments are designed to prevent taxpayers from paying more simply because of rising prices, they don’t necessarily mean a large tax refund is in store. According to Mark Luscombe, Principal Analyst at Wolters Kluwer Tax & Accounting, taxpayers earning the same income in 2025 as in 2024 should see little to no increase in their tax liabilities, thanks to these adjustments.
Moreover, the ongoing increase in the standard deduction continues to make itemized deductions less attractive for many, with most taxpayers choosing the simpler standard deduction route.
Looking Ahead: Changes to Watch After 2025
“Families should prepare for higher tax bills in 2026 unless Congress extends the provisions introduced in the Tax Cuts and Jobs Act of 2017.” Alex Durante from the Tax Foundation
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One of the most significant tax provisions set to expire after 2025 is the current structure of the child tax credit. For 2025, the refundable portion of the child tax credit remains at $1,700, unchanged from 2024. However, without congressional intervention, the child tax credit will drop from a maximum of $2,000 to $1,000 per child in 2026, which could result in higher tax liabilities for many families.
