The Internal Revenue Service (IRS) on Tuesday announced its inflation adjustments to tax brackets and deductions for the 2025 tax year, potentially giving Americans the 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 prevent a phenomenon known as bracket creep, which occurs when taxpayers are pushed into higher tax brackets due to rising incomes despite their purchasing power. unchanged or reduced due to high inflation.
While the IRS goes through the process of creating inflation adjustments Annually, the increases are more significant and impactful for taxpayers during periods of high inflation.
This year, the IRS is moving the brackets higher by about 2.75%. By comparison, last year’s adjustment was about 5.4% – reflecting the high inflation that was prevalent in the US economy last year compared to last year.
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The higher thresholds for this were different tax rates If these measures come into effect, they could deliver savings for millions of workers across all income groups. Here’s a look at the changes unveiled by the IRS that will take effect for the 2025 tax year and returns filed in 2026.
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Standard deduction:
The standard deduction, which reduces the income Americans have to pay taxes on, is claimed by a majority of taxpayers.
It is expected to increase by $400 to $15,000 for single taxpayers, while it will increase by $800 to $30,000 for married taxpayers filing jointly.
Heads of households will receive a standard deduction of $22,500 for the 2025 tax year, an increase of $600 from this year.
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Tax brackets for singles:
The IRS will increase its tax brackets by approximately 2.75% for both individual and married filers across different income levels in tax year 2025:
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10%: Taxable income up to $11,925
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12%: Taxable income above $11,925
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22%: Taxable income above $48,475
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24%: Taxable income over $103,350
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32%: Taxable income over $197,300
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35%: Taxable income above $250,525
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37%: Taxable income over $626,350
Tax brackets for joint filers:
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10%: Taxable income up to $23,850
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12%: Taxable income above $23,850
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22%: Taxable income above $96,950
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24%: Taxable income over $206,700
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32%: Taxable income over $394,600
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35%: Taxable income over $501,050
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37%: Taxable income over $751,600
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Other tax provisions:
The IRS also raised the thresholds for other tax deductions and credits to account for inflation Earned income tax credit (EITC), which will increase to $8,046 in tax year 2025 for eligible taxpayers with three or more qualifying children. That’s up from $7,830 in tax year 2024.
The exception amounts for the alternative minimum tax increase to $88,100 for individuals and phase out to $626,350 for unmarried individuals. For married couples filing jointly, the exemption increases to $137,000 and phases out to $1,252,700.
Employees can contribute an additional $100 flexible healthcare spending accountswith the dollar limit for employee salary reductions for contributions increasing to $3,300. The minimum carryover amount for plans that allow unused funds to be carried over to the next year will also increase to $660.
Source of original article: The IRS establishes new tax brackets and increases the standard deduction for 2025
