Taxpayers are starting to see the effects of the new federal income tax brackets for 2025 in their first paychecks of the year.
Why It Matters
Each year, the IRS reviews and adjusts the income thresholds for tax brackets, as well as other tax-related figures like the standard deduction. These adjustments are typically announced in the fall and take effect for the following tax year.
These adjustments, announced by the IRS in October 2024, reflect an approximately 2.8 percent increase in income thresholds for each bracket to account for inflation. As a result, taxpayers may notice changes in their take-home pay as the new brackets come into effect.
What To Know
The IRS has made several important changes for the 2025 tax year, including adjustments to federal income tax brackets and standard deductions to account for inflation. These changes will impact how much taxpayers owe and can keep in their paychecks.
What Are The New Tax Brackets For 2025?
Marginal tax brackets determine the rate at which your income is taxed. In the United States, the tax system is progressive, meaning that higher levels of income are taxed at higher rates. Each bracket represents a range of income, and as your income increases, portions of it are taxed at progressively higher rates.
Below is a table that outlines the new income thresholds for each tax bracket for 2025, incorporating an approximately 2.8 percent increase to account for inflation.
New Standard Deductions for 2025
For the 2025 tax year, the IRS has increased the standard deduction amounts to help taxpayers keep pace with inflation. For single taxpayers and married individuals filing separately, the standard deduction rises to $15,000, an increase of $400 from the previous year. For married couples filing jointly, the standard deduction increases to $30,000, up $800 from 2024. Heads of households will see their standard deduction rise to $22,500, an increase of $600.
Kevin Thompson, founder and CEO of 9i Capital Group, told Newsweek that the increased standard deduction can help more people avoid itemizing, offering some tax relief. However, the impact won't be felt by everyone. While lower and middle-income taxpayers might see modest benefits, people nearing retirement will see limited impact, and "high-income earners, who typically rely on itemized deductions, will likely see little-to-no change in their overall tax strategy."
Why New Tax Brackets Could Make Your Paycheck Bigger in 2025
The recent tax changes are primarily driven by inflation adjustments and efforts to prevent bracket creep. Bracket creep occurs when taxpayers are pushed into higher tax brackets due to inflation rather than an actual increase in real income. By adjusting the tax brackets and standard deductions, the IRS aims to ensure taxpayers aren't unfairly penalized by inflation and can maintain their purchasing power.
When tax brackets are adjusted for inflation, more of your income may fall into lower tax brackets, even if your salary remains the same. This means you'll be taxed at a lower rate, resulting in less money being withheld for taxes and more take-home pay. If your wages remain similar to 2024, these adjustments could make your take-home pay slightly higher. However, experts note the impact will not be as significant as in previous years.
Both Alex Beene, financial literacy instructor for the University of Tennessee at Martin, and Thompson told Newsweek that the adjustments for 2025 are smaller compared to previous years. As a result, most Americans will see minimal changes in their take-home pay for 2025, even with the increased standard deduction, compared to the more noticeable impact from previous years.
"Even with the increased standard deduction, the impact on take-home pay will be minimal compared to the increase from 2023 to 2024, which had a more noticeable positive effect on paychecks," Thompson said.
How Early Can You File Your Taxes In 2025?
The IRS typically starts accepting and processing tax returns for the previous calendar year in late January. However, the official date for the 2025 tax filing season hasn't been announced yet. Last year, the IRS began accepting tax returns on January 29, and the year before, it started on January 23.
What People Are Saying
Alex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek: "For most, the moving of the income threshold will add up to a small amount being added to each paycheck. It's always welcome news to see additional income each month, even if it is just a few dollars for many Americans. Just don't expect it to be a significant amount for the majority of employees."
"The standard deduction ensures an easy way for most to take a deduction on their tax bill, now at a slightly increased amount of $15,000 for individuals and $30,000 for married couples filing together. The only reason to not take the standard deduction would be if the amount of itemized deductions you have exceed those respective amounts, and typically that situation affects mostly the filings of higher income earners."
Kevin Thompson, founder and CEO of 9i Capital Group, told Newsweek: "The increased standard deduction may allow more individuals to avoid itemizing, providing some tax relief. However, for those in their early 60s or approaching retirement, the impact will be limited. Lower and middle-income taxpayers may see modest benefits, but high-income earners, who typically rely on itemized deductions, will likely see little to no change in their overall tax strategy."
What Happens Next
The tax filing deadline for 2025 is April 15, 2025, which is the standard deadline for most taxpayers. However, if you need more time to file, you can request an extension, which generally grants you until October 15, 2025, to submit your return.
If you're not comfortable doing your taxes on your own or have questions, both Thompson and Beene emphasized the importance of consulting a tax professional, such as a CPA, EA or tax attorney, for personalized guidance based on your financial situation.
There's also tax preparation software, which can be a cost-effective solution to help guide you through the tax-filing process and help check for errors. Some of the best tax software include TurboTax or H&R Block.
If your income is below a certain threshold, you may qualify for free software through the IRS Free File program. The IRS also has Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs that provide free tax help to those who make $67,000 or less, persons with disabilities and limited English-speaking taxpayers.
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