The IRS has released new federal income tax brackets for 2025 to hedge against inflation. The standard deduction has been set at $15,000 for single taxpayers, $22,500 for heads of household, and $30,000 for married couples. Changes have also been incorporated in long-term capital gains brackets, child tax credit eligibility, estate tax exemption, and more.
The IRS, in an announcement on Tuesday, augmented the income thresholds for each bracket, applicable for the tax year 2025 for returns filed in 2026. Individuals with taxable income above $626,350 and married couples filing jointly earning $751,600 or more will be taxed at the rate of 37%.
The IRS also augmented benchmarks for dozens of other provisions including estate and gift tax exemption and eligibility for the earned income tax credit.
The increase in each tax bracket constitutes a rise of 2.8% in the New Year as compared to 5.4% in 2024 and 7% for 2023. The latest rise is tiny compared to earlier years and is a sign of the cooling of inflation, which had surged uncontrollably during the pandemic and subsequent years.
What is a Federal Tax Bracket?
Federal income tax brackets are the amounts which any individual owes on each part of his or her ‘taxable income.’ This figure is arrived at by deducting the greater of the standard or itemized deductions from your adjusted gross income.
Former President Donald Trump enacted lower taxes, which are going to end in 2025 unless there is some action by Congress. If the provisions expire without any intervention, the tax brackets will revert back to the 2017 levels, shifting to 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
The $30,000 standard deduction for married couples filing jointly is an increase from $29,200 in 2024, and so also for single filers, whose standard deduction stands at $15,000 from $14,600.
Anyone can calculate their taxes due on April 15, 2025, with the 2024 tax brackets as benchmarks.
How Will You Calculate Your Tax
For example, if a person’s income, as a single filer, is $50,000 in 2025, he will be deemed to be in the 22% tax bracket. However, he will not pay a flat tax rate of 22%.
He will be taxed as follows:
- 10% of the first $11,925 = $1,192.50
- 12% of the subsequent $36,529 ($48,475-$11,926) = $4,383.48
- 22% of the final $1,524 ($50,000-$48,476) = $335.28
Total tax bill: $5,911.26
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