THE Internal Revenue Service (IRS) announced Tuesday its inflation adjustments to tax brackets and deductions for the 2025 tax year, potentially giving Americans a chance to increase their take-home pay next year.

Each year, the IRS updates the federal income tax bracket as well as the standard deduction and other tax policies to avoid a phenomenon known as “bracket creep,” which occurs when taxpayers are pushed into higher tax brackets due to their increasing income despite their purchasing power. being unchanged or reduced due to high inflation.

While the IRS undertakes the creation process inflation adjustments Each year the increases are larger and have a greater impact on taxpayers during times of high inflation.

This year, the IRS is increasing the brackets by about 2.75%. In comparison, last year the adjustment was approximately 5.4%, reflecting the high inflation that was prevalent in the U.S. economy the year before compared to the year before.

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Higher thresholds for cases where various tax rate The entry into force of this measure could lead to savings for millions of workers of all income brackets. Here’s a look at the changes unveiled by the IRS that will take effect for tax year 2025 and returns filed in 2026.

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Standard deduction:

The standard deduction, which reduces the amount of income Americans must pay taxes on, is claimed by the majority of taxpayers.

It is expected to increase from $400 to $15,000 for single taxpayers, while it will increase from $800 to $30,000 for married taxpayers filing joint returns.

Heads of household will benefit from a standard deduction of $22,500 for the 2025 tax year, up $600 from this year.

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Tax brackets for single people:

The IRS is increasing its tax brackets by approximately 2.75% for single and married filers at different income levels in tax year 2025:

• 10%: Taxable income up to $11,925

• 12%: Taxable income greater than $11,925

• 22%: Taxable income greater than $48,475

• 24%: Taxable income greater than $103,350

• 32%: Taxable income greater than $197,300

• 35%: Taxable income greater than $250,525

• 37%: Taxable income greater than $626,350

Tax brackets for joint filers:

• 10%: Taxable income up to $23,850

• 12%: Taxable income greater than $23,850

• 22%: Taxable income greater than $96,950

• 24%: Taxable income greater than $206,700

• 32%: Taxable income greater than $394,600

• 35%: Taxable income greater than $501,050

• 37%: Taxable income greater than $751,600

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Other tax provisions:

The IRS also increased the thresholds for other tax deductions and credits to account for inflation, including the Earned Income Tax Credit (EITC) which will amount to $8,046 in tax year 2025 for eligible taxpayers with three or more qualifying children. This is up from $7,830 for the 2024 tax year.

The exception amounts for the alternative minimum tax increased to $88,100 for individuals and begin to phase out at $626,350 for unmarried individuals. For married couples filing joint returns, the exemption is $137,000 and phases out at $1,252,700.

Workers can contribute $100 more to flexible health spending accountsthe monetary limit for employee salary reductions for contributions amounting to $3,300. The minimum carryover amount for plans that allow unused funds to be carried over to the following year will also increase to $660.

Original article source: IRS sets new tax brackets, increases standard deduction for 2025