IRS Tax Inflation Adjustments for the 2025 Tax Year

Market Memo

October 2024 – By Tom Rueger CFP®

The IRS’s yearly inflation adjustments have been announced. The IRS adjusts tax brackets yearly to avoid “bracket creep,” where people are taxed at a higher rate because they have a nominally higher income, but no greater purchasing power. Essentially, the brackets are indexed to inflation. The standard deduction and the income ranges on the seven income tax brackets will rise roughly 2.7% based on IRS formulas. That is lower than the 5.4% increase for 2024. The 2025 tax year adjustments apply to income tax returns to be filed in early 2026.

The tax rates (brackets) for tax year 2025 are:

  • 37% for single taxpayers with incomes over $626,350  & $751,600 for married couples filing jointly
  • 35% for single taxpayers with incomes over $250,525 & $501,050 for married couples filing jointly
  • 32% for single taxpayers with incomes over $197,300 & $394,600 for married couples filing jointly
  • 24% for single taxpayers with incomes over $103,350 & $206,700 for married couples filing jointly
  • 22% for single taxpayers with incomes over $48,475 & $96,950 for married couples filing jointly
  • 12% for single taxpayers with incomes over $11,925 & $23,850 for married couples filing jointly
  • 10% for single taxpayers with incomes of $11,925 or less & $23,850 for married couples filing jointly

For the tax year 2025, the standard deduction for married couples filing jointly increases to $30,000, and for single taxpayers and married individuals filing separately the standard deduction increases to $15,000. For heads of households, the standard deduction will be $22,500 for tax year 2025.

Estates of decedents who die during 2025 have a basic exclusion amount of $13,990,000, increased from $13,610,000 for estates of decedents who died in 2024.

The annual exclusion for gifts to individuals increases to $19,000 for the calendar year 2025, increased from $18,000 for the calendar year 2024.

After 2025, lower taxes enacted by former President Donald Trump will sunset without action from Congress. If the provision expires, the tax brackets will revert to 2017 levels, shifting to 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.

Investment advice offered through HighPoint Advisor Group, LLC, a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. Although general strategies and/or opinions are revealed, this post is not intended to, nor does it represent or reflect, transactions or activity specific to any one account. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All data and information are gathered from sources believed to be reliable and is not warranted to be correct, complete, or accurate.

Investments carry the risk of loss including loss of principal. Past performance is never a guarantee of future results. Vantage Financial Partners Limited is not a tax advisor. Please consult a tax professional for any specific questions regarding your tax situation.