The IRS just released its inflation-adjusted tax brackets for 2025 — and it’s the smallest increase in four years. Income thresholds for each tax bracket will rise by about 2.8% in the new year, compared with 5.4% in 2024 and 7% in 2023. The modest increase reflects the cooling pace of inflation since the peak years of the pandemic.
The 2025 tax brackets apply to taxes due in 2026. To calculate your taxes due on April 15, 2025, use the 2024 tax brackets.
Understanding how tax brackets work can be a little confusing, but essentially your income is taxed at different rates that increase as you earn more money. For example, let’s say you are a single filer making $50,000 in 2025. Even if you fall into the 22% tax bracket, you will not pay a fixed 22% tax rate.
Instead, your income will be taxed as follows:
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10% of the first $11,925 = $1,192.50
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12% of the next $36,529 ($48,475-$11,926) = $4,383.48
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22% of the last $1,524 ($50,000 – $48,476) = $335.28
Total tax bill: $5,911.26
Even though you are in the 22% tax bracket, your effective tax rate is just under 12%. You may be able to reduce your tax bill even further if you qualify for tax credits and deductions.
Read more: Federal Income Tax Brackets and Rates 2024-2025
The standard deduction is an amount that you can deduct from your taxable income, even if you have no deductible expenses. Most taxpayers choose the standard deduction versus itemizing.
The standard deduction will increase to the following amounts in 2025:
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Single filers: $15,000
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Heads of Household: $22,500
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Married couples filing jointly: $30,000
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Couples filing separately: $15,000
Returning to our example of one filer earning $50,000 in 2025, if you took the standard deduction of $15,000, your taxable income would drop to just $35,000 ($50,000 – $15,000).
The IRS has also announced several more inflation adjustments that will take place next year.
The Earned Income Tax Credit, or EITC, is a tax credit designed to help low- and moderate-income workers and their families. The maximum credit for taxpayers with three or more qualifying children increases to $8,046 in 2025, up from $7,830 in 2024. You may qualify for a smaller credit if you have fewer than three children (or even no tax dependents at all), depending on your income.
A flexible health spending account, or FSA, is an employer-sponsored account that allows you to set aside pre-tax money for IRS-approved health expenses. The contribution limit for health FSAs will increase by $100, from $3,200 in 2024 to $3,300 in 2025.
