The IRS on Tuesday announced its new inflation-adjusted tax brackets for 2025, with the annual income thresholds rising by about 2.8% from 2024 — the smallest jump in several years.
The IRS each fall announces inflation-adjusted changes to the tax brackets and dozens of other provisions for the following tax year. Because inflation jumped during the pandemic, the bracket adjustments were larger in the past few years, reaching 7% in 2023 and 5.4% in the current year.
The idea is to protect taxpayers from “bracket creep” — when workers are pushed into higher tax bands due to the impact of cost-of-living adjustments aimed at offsetting inflation — without a change in their standard of living.
But with U.S. inflation cooling to its lowest level in three years, the IRS’ annual adjustments are likewise becoming smaller.
For instance, the new threshold for the 10% tax bracket for married couples filing jointly will rise to $23,850 in 2025, a 2.8% increase from its 2024 threshold of $23,200.
The standard deduction in 2025 will rise to $30,000 for married couples filing jointly, a roughly 2.7% increase from the current tax year’s $29,200.
How tax brackets work
Taxation in the U.S. is progressive, meaning that tax rates increase as people earn more money. But some people incorrectly believe that their top rate is what they’ll pay on all of their income. Instead, the brackets represent the percentage you’ll pay in taxes on each portion of your income.
For instance, married taxpayers who file jointly and earn more than $23,850 (the top threshold for the 10% bracket in 2025) will likely pay $2,385 in federal income tax — or 10% of their first $23,850 in earnings — and then 12% on any income above that amount, up to $96,950.