IRS to set new 2025 tax brackets: What to expect
Some Americans may experience lower federal income taxes in 2025 due to the annual bracket adjustment by the IRS.
However, the relief may be less significant compared to the adjustments in the last two years.
Overview of 2025 tax bracket adjustments
The IRS typically releases its new tax brackets each fall, but financial experts have already provided forecasts for 2025 adjustments based on inflation data.
According to estimates from Bloomberg Tax and TFX, tax brackets and other provisions for the 2025 tax year are expected to increase by about 2.8%.
Smaller adjustment due to cooling inflation
If these projections hold true, the 2025 adjustment will be the smallest in at least three years, following a 5.4% increase in 2024 and a 7.1% rise in 2023.
The smaller increase is due to cooling inflation, which dropped to a three-year low in August 2023, after peaking at a 40-year high in 2022.
Why adjusting tax brackets matters
Preventing “Bracket Creep”. Adjusting tax brackets for inflation is essential to prevent "bracket creep," where individuals are pushed into higher tax brackets due to cost-of-living increases without any real increase in their standard of living.
Mark Steber, chief tax information officer at Jackson Hewitt, notes that these annual adjustments help ensure that taxpayers are not penalized for receiving inflation-related pay raises.
How inflation impacts IRS adjustments
The IRS bases its annual inflation adjustments on the chained Consumer Price Index (CPI), as mandated by the Tax Cuts and Jobs Act (TCJA) of 2017.
The chained CPI differs from the traditional CPI as it more accurately reflects spending patterns, making it a more reliable tool for tax bracket adjustments.
New 2025 tax bracket thresholds
The 2025 tax bracket rates will remain the same, but the income cutoffs for each band will rise based on the inflation adjustments.
| Tax Rate | 2024 Income Threshold (Single Filers) | 2025 Income Threshold (Single Filers) |
|---|---|---|
| 10% | Up to $11,000 | Up to $11,308 |
| 12% | $11,001 - $44,725 | $11,309 - $45,984 |
| 22% | $44,726 - $95,375 | $45,985 - $97,961 |
| 24% | $95,376 - $182,100 | $97,962 - $187,199 |
| 32% | $182,101 - $231,250 | $187,200 - $237,713 |
| 35% | $231,251 - $578,125 | $237,714 - $594,359 |
| 37% | Over $578,125 | Over $594,359 |
Note: Thresholds for married filing jointly, head of household, and married filing separately vary accordingly and follow similar inflation adjustments.
This table clearly shows the changes in tax bracket thresholds for single filers from 2024 to 2025, making it easy to see the differences.
Adjust the values according to the actual IRS announcements or forecast data for other filing categories if needed.
How marginal tax rates work
Tax brackets determine how much tax you pay on each portion of your income, not the total income.
For example, married taxpayers filing jointly who earn more than $23,850 (the top of the 10% bracket) will pay 10% on their first $23,850 and 12% on any income above that, up to $96,950.
Projected standard deduction increase for 2025
The standard deduction, which reduces the amount of income subject to federal tax, is also expected to rise by approximately 2.8% for 2025:
- Married couples filing jointly: Increase to $30,000 (up from $29,200 in 2024)
- Single taxpayers: Increase to $15,000 (up from $14,600 in 2024)
- Head of household filers: Increase to $22,500 (up from $21,900 in 2024)
- Married filing separately: Increase to $15,000 (up from $14,600 in 2024)
How to use the new tax bracket information
Planning ahead for tax year 2025
Although the new tax bracket thresholds won’t take effect until January 2025, understanding these changes can be beneficial for tax planning now.
Professional CPAs suggest conducting a year-end review to ensure you’ve paid enough taxes for the current year to avoid surprises when filing in April 2025.
Adjust withholding and contributions
Based on the projected tax bracket adjustments and your expected income in 2025, you may need to adjust your tax withholding.
Additionally, consider increasing contributions to your retirement plans, such as a 401(k) or IRA, to optimize your tax situation.
Also read – 401(k) withdrawal penalty rule changes for 2024
Final thoughts
The projected changes in the 2025 tax brackets reflect the ongoing impact of inflation on taxpayers.
While adjustments are expected to be smaller than in previous years, understanding these changes and planning accordingly can help you maximize your tax benefits and minimize your liabilities.