This week, the Internal Revenue Service ("IRS") announced its annual inflation adjustments for tax year 2025.
The IRS announces similar adjustments each fall. The annual changes have been more significant in the last couple of years due to the high rate of inflation following the pandemic. However, the increase to the income thresholds for the 2025 tax brackets is the smallest change in several years. For tax year 2023, the adjustment to the income thresholds was 7%, for tax year 2024, it was 5.4%, and for tax year 2025, it is approximately 2.8%.
Among the adjustments announced, the updated marginal rates for tax year 2025 are as follows:
- 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).
- 12% for incomes over $11,925 ($23,850 for married couples filing jointly).
- 22% for incomes over $48,475 ($96,950 for married couples filing jointly).
- 24% for incomes over $103,350 ($206,700 for married couples filing jointly).
- 32% for incomes over $197,300 ($394,600 for married couples filing jointly).
- 35% for incomes over $250,525 ($501,050 for married couples filing jointly).
- 37% for incomes over $626,350 ($751,600 for married couples filing jointly).
Additionally, the standard deduction for single taxpayers and married individuals filing separately will rise to $15,000. For married couples filing jointly, it will be $30,000. For heads of households, the standard deduction will be $22,500.
The IRS also announced changes to the Earned Income Tax Credit, annual exclusion for gifts, foreign earned income exclusion and more. Detailed information about all of the adjustments for tax year 2025 can be found in Revenue Procedure 2024-40 RP 24.
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