Now that inflation has cooled, taxpayers can expect relatively minor changes in the annual inflation adjustment for tax brackets going forward and some tax breaks for 2025.
The Internal Revenue Service on Tuesday announced annual inflation adjustments for standard deductions, marginal tax rates, earned income tax credits, adoption credits and more for 2025.
For example, overall, we’re talking about an inflation-related adjustment of roughly 2.7% that would apply to the standard deduction.
The income tax credit will be adjusted to inflation and will increase in 2025. File: A sign for Detroiters to claim their income tax credit is placed on the door as people enter to get their taxes done at the Ford Resource and Engagement Center- East in Detroit on January 26, 2023. Ryan Garza, Detroit Free Press
The standard deduction will increase to $15,000 for 2025 tax returns – an increase of $400 from 2024 – for single taxpayers and married individuals filing separately.
The standard deduction increases to $30,000 – an increase of $800 from 2024 – for married couples filing jointly.
For heads of household, the standard deduction for the 2024 tax year is $22,500, which is $600 more than in 2024.
About 90% of taxpayers now claim the standard deduction and do not itemize deductions.
In general, inflation adjustments won’t mean you can look forward to a huge tax refund. But such adjustments ensure that you are not saddled with a higher tax bill simply because inflation has skyrocketed.
Without such adjustments, the impact of inflation on taxes would be much greater. The impact of inflation on tax brackets in 2025 will be modest after larger inflation-adjusted changes of roughly 5.4% in 2024 and 7.1% in 2023.
“Each year, certain elements of the tax code are amended by law to reflect changes in the current economy,” said Mark Steber, head of tax information at Jackson Hewitt.
Instant file for taxes: IRS is doubling the number of states eligible for the free Direct File for tax season 2025
“Typically,” he said, “inflation adjustments can impact tax revenues in a variety of ways, from changing tax brackets to increasing 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 will see no further tax increases or decreases after the IRS inflation adjustments, said Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting in Riverwoods, Illinois. .
“Increases in the standard deduction will also ensure that the standard deduction remains more attractive to many taxpayers than itemized deductions,” Luscombe said.
Luscombe noted that the latest IRS inflation adjustments for 2025 are based on a consumer price index of 2.88%. But due to the rounding of various tax figures, the actual amount of the adjustment will not always accurately reflect that figure.
He said the 2025 inflation adjustments represent the smallest inflation-related changes since 2021.
For some families, such as lower-income taxpayers who qualify for the earned income tax credit, tax benefits increase as inflation adjusts.
For eligible taxpayers who have three or more qualifying children, the maximum income credit will go to $8,046 in 2025, an increase of $216 from 2024. That’s an increase of almost 2.76%.
One taxpayer earning more than $48,475 in 2025 will have a top marginal tax rate of 22%. In contrast, a single taxpayer earning more than $47,150 in 2024 will face a high marginal tax rate of 22%.
Social security: Who is not eligible?
After inflation adjustments, more of your money may end up being taxed at a lower rate.
Here are inflation adjustments for 2025:
10% is the lowest rate for singles with incomes of $11,925 or less. It applies to incomes of $23,850 or less for married couples filing jointly.
12% for incomes above $11,925 ($23,850 for married couples filing jointly).
22% for incomes above $48,475 ($96,950 for married couples filing jointly).
24% for incomes above $103,350 ($206,700 for married couples filing jointly).
32% for incomes above $197,300 ($394,600 for married couples filing jointly).
35% for incomes above $250,525 ($501,050 for married couples filing jointly).
The top tax rate will be 37% in 2025 for individual single taxpayers with incomes over $626,350 ($751,600 for married couples filing jointly).
In contrast, the top tax rate of 37% applied to single taxpayers with incomes above $609,350 in 2024. And the 37% rate hit married couples who filed joint incomes above $731,200.
Other significant changes will occur before 2025. For tax year 2025, the maximum allowable credit for the adoption of a child with special needs is the amount of qualified adoption expenses up to $17,280, up from $16,810 in 2024.
For tax years beginning in 2025, the IRS noted that the limit on employee salary reductions for contributions to health care flexible spending plans will be $3,300, but that’s only a $100 increase from 2024.
A number of parts of your tax return are not corrected for inflation by law. The personal exemptions will remain at zero for the 2025 tax year. The elimination of the personal exemption was part of the Tax Cuts and Jobs Act of 2017.
This story has been updated to add new information.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tomorrow.
This article originally appeared on Detroit Free Press: IRS adjusts 2025 tax rates and standard deduction after inflation
