The 2025 Tax Brackets Are Here. See What Has Changed

It will take more income to reach each higher tax bracket after the roughly 2.8% inflation adjustment.2025 Tax Brackets Edge Up with Inflation: Slightly Higher Thresholds, New Standard Deduction, and Estate Limits Could Lower Many Tax Bills.

According to the IRS's latest announcement, for 2025, Americans will see modest adjustments to their income tax brackets, moving up by about 2.8%. This means it will take slightly more income to reach each tax bracket next year. These adjustments, tied to inflation, are smaller than in recent years, reflecting the cooling rate of inflation, though wages are still up 4% from last year.

Increasing the standard deduction and the updated income thresholds in each tax bracket may result in slightly lower tax bills for many taxpayers. However, the difference may be minor, perhaps a few hundred dollars. Adjustments to estate- and gift-tax limits could provide substantial tax savings for some.

2025 Income Tax Brackets

For 2025, the income threshold for the highest federal tax bracket will rise by about $20,000 for married couples, with the 37% rate applying to income over $751,600. For single filers, this top rate will begin at $626,350. Despite these higher brackets, most people’s effective tax rate will be lower due to graduated rates starting at 10%, then 12%, and so forth. For instance, an individual earning $120,000 in 2025 will be taxed at a 15% effective rate despite reaching the 24% bracket.

Limits Without Inflation Adjustments

Some tax limits do not adjust with inflation, including the $10,000 cap for state and local tax deductions (SALT), the $2,000 child tax credit maximum, and the $3,000 capital loss deduction cap. These limits remain unchanged.

Key Changes in the 2025 Tax Code

The Tax Cuts and Jobs Act of 2017 included provisions that are set to expire at the end of 2025. If Congress does not renew these, the top tax rate will jump to 39.6% and apply at lower income thresholds, meaning 2025 could be a critical year for personal tax planning.

Standard Deduction and Capital Gains

For 2025, the standard deduction will rise to $15,000 for individuals and $30,000 for married couples, up from $14,600 and $29,200 respectively. This increase may encourage more people to take the standard deduction rather than itemizing.

Capital gains tax income thresholds will also adjust. In 2025, single filers with income up to $48,350 and couples with income up to $96,700 can benefit from a 0% capital gains tax rate.

Estate and Gift Tax Exemptions

For 2025, the estate tax exclusion will rise to $13.99 million from $13.61 million, allowing individuals to shelter this amount from estate taxes. Additionally, the limit for tax-free gifts will increase to $19,000, up from $18,000, without counting toward the lifetime exemption.

With potential changes looming after 2025, wealthy Americans are making estate plans to maximize current tax benefits. Retirement account limits will also be adjusted for inflation, with the IRS providing more details later in the year.

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