On Tuesday, the IRS revealed the updated inflation-adjusted tax brackets for 2025, with income thresholds increasing by approximately 2.8% from 2024-the smallest rise in several years. Each fall, the IRS announces inflation-based changes to tax brackets and various provisions for the next tax year.
Following a surge in inflation during the pandemic, previous adjustments were significantly higher, peaking at 7% in 2023 and 5.4% this year.
These adjustments aim to shield taxpayers from “bracket creep,” which occurs when inflation pushes individuals into higher tax brackets without an actual increase in their living standards. Alex Durante, an economist at the Tax Foundation, explained that bracket creep happens when inflation, rather than genuine income growth, elevates taxpayers into higher brackets or diminishes the value of their credits and deductions.
As inflation in the U.S. cools to its lowest level in three years, the IRS’s adjustments are also becoming smaller. For example, the threshold for the 10% tax bracket for married couples filing jointly will increase to $23,850 in 2025, up from $23,200 in 2024.
New Standard Deduction for 2025
In 2025, the standard deduction will rise to $30,000 for married couples filing jointly, reflecting a 2.7% increase from the current $29,200. Single filers and married individuals filing separately will see their standard deduction increase to $15,000, up from $14,600 this year.
The standard deduction, which reduces taxable income, is utilized by most taxpayers, as noted by the Tax Policy Center. For instance, a married couple with a combined income of $100,000 could lower their taxable income to $70,000 using the 2025 standard deduction. While itemizing deductions is another option, most individuals find their deductions insufficient to exceed the standard amount.
How Tax Brackets Work
U.S. taxation is progressive, meaning tax rates rise with income. However, some mistakenly believe their top rate applies to all their income. Instead, tax brackets indicate the rate applied to each income segment.
For example, married couples filing jointly with income over $23,850 (the 10% bracket limit for 2025) would owe $2,385 in federal income tax-10% on the first $23,850 and 12% on any earnings above that, up to $96,950. In practice, couples in these brackets may owe less or receive refunds due to the standard deduction and other credits.
New Capital Gains Thresholds for 2025
The IRS also adjusts capital gains tax income thresholds for inflation, with some low- and middle-income taxpayers benefiting from a 0% tax rate on appreciated asset sales. In 2025, individuals earning up to $48,350 and married couples earning up to $96,700 will qualify for this rate.
Single filers with incomes between $48,350 and $533,400 will incur a 15% rate, while those above that threshold will pay 20%. Married couples earning between $96,700 and $600,050 will face a 15% rate, and those earning beyond that will pay 20%.
Estate Tax and Tax-Free Gifts
Next year, the federal estate tax exclusion will increase to $13.99 million from $13.61 million in 2024. Additionally, in 2025, individuals will be allowed to gift up to $19,000 tax-free, up from this year’s limit of $18,000.
How much single fillers will pay in taxes next year?
- 10%: $0 – $11,925
- 12%: $11,926 – $48,47
- 22%: $48,476 – $103,350
- 24%: $103,351 – $197,300
- 32%: $197,301 – $250,525
- 35%: $250,526 – $626,350
- 37%: $626,351 and up
How much married couples will pay in taxes next year?
- 10%: $0 – $23,850
- 12%: $23,841 – $95,950
- 22%: $96,951 – $206,700
- 24%: $206,701 – $394,600
- 32%: $394,601 – $501,050
- 35%: $501,051 – 751,600
- 37%: $751,601 and up
