As inflation has cooled down, taxpayers can expect to see relatively slight changes ahead in the annual inflation adjustment for tax brackets and some tax breaks for 2025.
The Internal Revenue Service on Tuesday announced the annual inflation adjustments for standard deductions, marginal tax rates, earned income tax credits, adoption credits and more for 2025.
Overall, for example, we’re talking about roughly a 2.7% inflation-related adjustment that would apply to the standard deduction.
The earned income tax credit is adjusted for inflation and will go up in 2025. File: A sign for Detroiters to claim their earned income tax credit is posted on the door as people walk in to get their taxes done at Ford Resource and Engagement Center-East in Detroit on Jan. 26, 2023. Ryan Garza, Detroit Free Press
The standard deduction will go up to $15,000 for 2025 tax returns — up $400 from 2024 — for single taxpayers and married individuals filing separately.
The standard deduction climbs to $30,000 — up $800 from 2024 — for married couples filing jointly.
For heads of households, the standard deduction will be $22,500 for tax year 2024 — up $600 from 2024.
About 90% of taxpayers claim the standard deduction now and do not itemize deductions.
In general, inflation adjustments won’t mean that you can look forward to a whooper of a tax refund. But such adjustments mean you’re not going to get socked with a higher tax bill simply because inflation took off like a rocket.
Without such adjustments, the impact of inflation would be far worse on taxes. Inflation’s impact on tax brackets in 2025 will be modest after more sizable inflation-adjusted changes of roughly 5.4% in 2024 and 7.1% in 2023.
“Each year select elements in the tax code are adjusted by law to reflect changes to the current economy,” said Mark Steber, chief tax information officer for Jackson Hewitt.
“Typically,” he said, “inflation adjustments can impact tax income in a variety of ways from changing filing brackets to larger 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 should see no increase in taxes or a decrease in taxes after the IRS inflation adjustments, according to Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting in Riverwoods, Illinois.
“Increases in the standard deduction will also tend to continue to make the standard deduction more attractive than itemized deductions for many taxpayers,” Luscombe said.
Luscombe noted that the latest IRS inflation adjustments for 2025 are based on a consumer price index number of 2.88%. But due to rounding for various tax figures, the actual amount of the adjustment will not always precisely reflect that figure.
The 2025 inflation adjustments, he said, 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 breaks go up with inflation adjustments.
For qualifying taxpayers who have three or more qualifying children, for example, the maximum earned income credit will go to $8,046 in 2025, up $216 from 2024. That’s nearly a 2.76% increase.
A single taxpayer who earns more than $48,475 in 2025 will have a top marginal tax rate at 22%. By contrast, a single taxpayer who earns more than $47,150 in 2024 will face a top marginal tax rate at 22%.
After inflation adjustments, more of your money could 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 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).
The top tax rate is 37% in 2025 for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly).
By contrast, the top tax rate of 37% applied for single taxpayers with incomes greater than $609,350 in 2024. And the 37% rate hit married couples filing jointly with incomes above $731,200.
Other key changes will take place for 2025. For tax year 2025, the maximum credit allowed for an 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 the taxable years beginning in 2025, the IRS noted that the limit for employee salary reductions for contributions to health flexible spending arrangements will be $3,300, but that is only a $100 boost from 2024.
Several parts of your tax return are not adjusted for inflation, based on the statute. Personal exemptions remain at zero for tax year 2025. 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.
