The Internal Revenue Service (IRS) has released its annual inflation adjustments for the 2025 tax year, implementing modest changes to income thresholds that will affect millions of American households. The adjustments—the smallest in recent years—reflect a 2.8% increase in tax bracket thresholds while maintaining current marginal rates.
Tax Bracket Changes
While the seven-tier federal income tax structure remains unchanged, the income thresholds for each bracket will increase across all filing statuses:
- 37% rate: Applies to income over $626,350 for singles ($751,600 for married couples filing jointly)
- 35% rate: $250,525+ for singles ($501,050+ joint)
- 32% rate: $197,300+ for singles ($394,600+ joint)
- 24% rate: $103,350+ for singles ($206,700+ joint)
- 22% rate: $48,475+ for singles ($96,950+ joint)
- 12% rate: $11,925+ for singles ($23,850+ joint)
- 10% rate: Applies to the first $11,925 of income ($23,850 joint)
Purpose of Adjustments
These annual modifications aim to prevent "bracket creep," where inflation pushes taxpayers into higher tax brackets despite no real increase in purchasing power. By adjusting thresholds, the IRS seeks to maintain tax burdens relative to actual economic conditions.
Standard Deduction Increases
The standard deduction—which most taxpayers claim instead of itemizing—will rise to $30,000 for married couples filing jointly (up from $29,200) and $15,000 for single filers. This adjustment reduces taxable income for millions of households.
Looming Tax Policy Changes
The announcement comes as provisions from the 2017 Tax Cuts and Jobs Act are set to expire after 2025. Unless Congress acts, rates will revert to pre-2017 levels—potentially increasing tax liabilities across all income groups.
Other Key Adjustments
The IRS also announced changes to several other tax provisions:
- Estate tax exemption: Rising to $13.99 million per individual (from $13.61 million)
- Gift tax exclusion: Increasing to $19,000 per recipient
- Capital gains: Potential adjustments to long-term investment tax rates
Impact and Analysis
While the modest adjustments provide some inflation relief, economists note they may not fully offset recent cost-of-living increases. The coming expiration of Trump-era tax cuts adds further uncertainty, with potential significant impacts on middle-class families and government revenue streams.