The IRS has announced changes to federal income tax brackets for 2025, increasing each income threshold by approximately 2.8%. This adjustment is a notable decrease from the 5.4% increase seen in 2024, reflecting a cooling inflation environment.
Brian Long, a certified public accountant and senior tax advisor at Wealth Enhancement, commented, "The yearly inflation adjustment is much less drastic this year." The consumer price index rose by 2.7% in November 2024 compared to the previous year, down from a peak of 9.1% in June 2022.
As a result of these changes, individuals starting 2025 with similar wages to 2024 may see a slight increase in take-home pay, depending on their tax withholdings. Long noted, "When all the tax brackets go up, but your salary stays the same, relatively, that puts you on a lower rung of the ladder."
The standard deduction will rise to $30,000 for married couples filing jointly, up from $29,200 in 2024, while single filers will see an increase to $15,000, up from $14,600. Long explained that even if an individual earns slightly more than the previous year, they could pay less in taxes in 2025 due to these adjustments.
Despite these increases, Sheneya Wilson, a CPA and founder of Fola Financial, cautioned that many Americans may not feel the benefits due to rising costs in essential areas like groceries and gasoline. "It ends up nearly balancing out," she stated.
Wilson emphasized the importance of monitoring federal and state tax withholdings throughout the year, especially during significant life changes, to avoid unexpected tax bills.