The IRS just released its inflation-adjusted tax brackets for 2025 — and it’s the smallest increase in four years. Income thresholds for each tax bracket will rise by about 2.8% in the new year, compared to 5.4% in 2024 and 7% for 2023. The modest increase reflects the cooling pace of inflation since the peak years of the pandemic.
What are the tax brackets for 2025?
The tax brackets for 2025 apply to taxes due in 2026. To calculate your taxes due on April 15, 2025, you’ll use 2024 tax brackets.
Understanding how tax brackets work can get a bit confusing, but essentially, your income is taxed at several different rates that increase as you earn more money. Let’s say, for example, that you’re a single filer who earns $50,000 in 2025. Even though you’d fall into the 22% tax bracket, you won’t pay a flat tax rate of 22%.
Instead, your income would be taxed as follows:
10% of the first $11,925 = $1,192.50
12% of the next $36,529 ($48,475-$11,926) = $4,383.48
22% of the last $1,524 ($50,000-$48,476) = $335.28
Total tax bill: $5,911.26
Even though you’re in the 22% tax bracket, your effective tax rate is just under 12%. You may be able to lower your tax bill even more if you qualify for tax credits and deductions.
What’s the standard deduction in 2025?
The standard deduction is an amount you can subtract from your taxable income, even if you don’t have deductible expenses. Most taxpayers opt for the standard deduction vs. itemizing.
The standard deduction will increase to the following amounts in 2025:
Single filers: $15,000
Heads of household: $22,500
Married couples filing jointly: $30,000
Married couples filing separately: $15,000
Going back to our example of a single filer who earns $50,000 in 2025: If you took the standard deduction of $15,000, your taxable income would drop to just $35,000 ($50,000-$15,000).
Other tax changes to expect in 2025
The IRS also announced a few more inflation adjustments that are coming next year.
Earned income tax credit (EITC)
The earned income tax credit, or EITC, is a tax credit aimed at helping low- to moderate-income workers and their families. The maximum credit for taxpayers with three or more qualifying children jumps to $8,046 in 2025, up from $7,830 in 2024. You may be able to qualify for a smaller credit if you have fewer than three children (or even no tax dependents at all), depending on your income.
Health flexible spending accounts (FSAs)
A health flexible spending account, or FSA, is an employer-sponsored account that lets you set aside pre-tax money for IRS-approved health expenses. The contribution limit for health FSAs will increase by $100, from $3,200 in 2024 to $3,300 in 2025.
You’ll be allowed to carry over up to $640 of unused funds to the following year if your plan allows it, up from $620 in 2024.
Adoption credit
If you adopt a child, you may qualify for the adoption credit to help offset expenses like court costs, adoption fees, and travel expenses. The maximum adoption credit, which is available to families who adopt a child with special needs, is $17,280 in 2025, up from $16,810 in 2024.
Estate tax exclusions
Unless you die with millions of dollars’ worth of assets in your estate, this part doesn’t affect you. However, the estate tax exclusion — the amount of your estate that’s shielded from federal taxes — will climb to $13.99 million in 2025, up from $13.61 million in 2024. In other words, the first $13.99 million in your taxable estate won’t be taxed by the federal government, but anything above this amount could be subject to federal estate tax.
How does the IRS calculate tax bracket adjustments?
The IRS adjusts tax rates to account for inflation based on changes to something called the Chained Consumer Price Index for All Urban Consumers, or C-CPI-U. This is a bit different from the Consumer Price Index for All Urban Consumers, or CPI-U, which is used to calculate Social Security cost-of-living adjustments (COLAs) and inflation-based wages.
Both the C-CPI-U and the CPI-U are published by the US Bureau of Labor Statistics. Each index calculates inflation based on changes in the price of goods that consumers regularly purchase. But the C-CPI-U formula better accounts for substitutions that consumers commonly make in response to price changes. For example, if the price of apples spiked by 30%, you might start buying more oranges instead, assuming their prices held steady or increased by a modest amount.
Tax adjustments are calculated from year-over-year changes to the C-CPI-U for the 12-month period that ends Aug. 31. So the 2.8% increase to income thresholds in 2025 is based on the inflation rate from September 2023 to August 2024 compared to the previous year.
