2025’s inflation-adjusted tax brackets will keep some taxpayers from being bumped to a higher rate

Sometimes you can feel like you’re in over your head when it comes to all the annual tax changes. Well, the ol’ blog is here to be your life preserver, parceling out the 2025 inflation adjustments in a 10-post series. This first segment is on next year’s tax brackets. (Photo by Kalina O. on Unsplash)

Inflation and taxes are two things most of us really, really don’t like. But sometimes, together they can be to our benefit.

Today is one of those times.

The Internal Revenue Service announced its annual inflation adjustments for a variety of tax provisions that will affect our 2025 tax year returns we’ll file in 2026.

While that’s more than a year away, and we’re still thinking about how to reduce our 2024 tax bills, the inflation figures for next year can help with that planning.

The IRS’ press release offers some highlights of the coming changes. All the details on the changes next year to more than 60 tax provisions can be found in the agency’s official Revenue Procedure 2024-40. If you want to dive into the whole wide pool of tax changes, go ahead and click those links.

I, however, like to ease into the tax waters. As long-time readers know, I parcel out all the annual tax-related inflation information in the ol' blog's 10-part series.

Spreading out the inflation adjustments gives me a chance to go a bit more in depth on each of the areas that change, or don’t. And if you're interested in just some of the adjustments, it saves you having to wade through all the tax waters.

So here goes. Part 1 of the 2025 tax inflation series looks at the adjustments next year to our income tax brackets.

What's my tax bracket? We all hope to make more money each year. But we don't want that added income to bump us into a higher tax bracket.

The good tax news is that the inflation adjustments to the brackets mean more of our 2025 earnings might stay at our current tax level, instead of creeping into the next, more costly bracket.

The seven tax rates set by the Tax Cuts and Jobs Act of 2017 — 10, 12, 22, 24, 32, 35, and 37 percent — will still be in effect in 2025. It could be their last year in the tax code, though. If Congress doesn't act, these rates will expire on Dec. 31, 2025.

I know, this annual overlap of tax years can be confusing, and is exacerbated by concern about even more tax changes in 2026. But it's also good to have the coming year's amounts so we can comparing current and future data to help make more beneficial tax decisions.

For example, some folks might be able to postpone a portion of 2024 earnings into 2025 with its wider income tax brackets so they won't end this year in a higher tax bracket. And knowing that taxes could look markedly different in 2026 also is a factor in next year’s planning.

That said, the income tax brackets for 2025 are in the table below.

   
And for comparison purposes, here are the current 2024 tax year rates and income tax brackets that will apply to this year's tax return you'll file in 2025.

   
If you just haven't had enough tax numbers, you also can check out the ol' blog's special page on tax rates and income brackets through the years.

Progressive tax rates pay off: As the 2024 and 2025 income tax bracket tables show, the increase in income amounts to which each of the current seven tax rates apply means you'll be able to make more money without your tax bill growing so much.

Your final tax bill also is kept under relative control thanks to our progressive tax rate system. Your earnings are taxed at all the rates that apply to your income, not just at the top rate that applies to the last dollar you earn.

Applying the just announced 2025 tax brackets, here's how it works, using a single taxpayer — let's call her Kathy — as an example.

Kathy's 2025 annual income is $110,000. That would put her next year into the 24 percent tax bracket. But her tax bill isn't $26,400, which is 24 percent of $110,000.

Under our progressive tax system, the first chunk of Kathy's earnings next year, up to $11,925 is taxed at 10 percent. The next tax rate, 12 percent, applies her earnings of $11,926 to $48,475. Her 2025 pay from $48,476 to $103,350 is taxed at 22 percent. And it's only that last chunk of earned dollars, from $103,351 to $110,000 that is taxed at 24 percent.

That means her taxes breakout in 2025 is —

    
The total for Kathy's 2025 tax bill comes to $19,247, well below the $26,400 if you applied the 24 percent tax rate to all her earnings.

That gives Kathy an effective tax rate, which is the average rate of tax on all dollars, of 17.5 percent, not her marginal tax rate, the rate that applies to the last dollar that a taxpayer earns, of 24 percent .

And in fact, the smallest portion of Kathy’s total $110,000 is taxed at her highest rate.

Of course, this calculation for Kathy’s 2025 tax bill is a basic, for-illustration-purposes-only example. The ol' blog's tax-savvy readers have already realized it doesn't take into account the deductions (standard or itemized) that Kathy can claim — which will be discussed in Part 2 of the 2025 tax inflation series — or any other tax breaks that could reduce her taxable income and ultimate tax bill.

But the rough numbers give you an idea of how the wider tax brackets in 2025 could help lessen that year's tax bill.

But wait, there's more: As noted, the tax brackets in this post are just a part of the vast array changes prompted by inflation and cited in IRS . You can take a look at the rest of the items in the 27-page IRS Revenue Procedure 2024-40.

Still to come in a separate IRS announcement are 2025 tax year changes to retirement and pension plans that are affected by cost-of-living adjustments, or COLAs. Though not technically inflation adjustments, since the COLA changes do take inflation into account, they are part of the ol' blog's annual inflation series, too.

Back in May, the IRS released its 2025 inflation hikes for high deductible health plans and associated health savings accounts. I'll touch on the HDHP/HSA amounts again in Part 5, the medical tax inflation category.

The Social Security Administration (SSA) last month released the 2025 wage base amount. While not technically an IRS administered tax, this income figure affects payroll taxes, specifically the Social Security part of the Federal Insurance Contributions Act (FICA), so it gets a mention in Part 7 of this series.

And later this year, the IRS will let us know the annual adjustments to the optional standard mileage rates that are tax deductible for various kinds of travel.

Now do you see why I do the series instead of one big inflation tax numbers dump?

You can get a preview of everything that's coming up in the directory below. When those listed posts go live, I'll add the links there. This first post is linked in the table of contents, as are the 2025 tax year adjusted amounts that were announced earlier.

Thanks for reading, and thanks for your patience in waiting for specifics on all the 2025 inflation adjusted amounts.
   

2025 Tax Year Inflation Series Table of Contents

1. 2025 tax rates and income brackets
2. Standard deduction amounts, itemized deduction considerations, and personal exemptions
3. Credits and deductions, including adoption costs and assistance, Lifetime Learning Credit, Earned Income Tax Credit, educators' expenses, interest on education loans and transportation fringe benefits
4. Medical-related tax provisions, including contributions to a flexible spending account, health savings account, and medical savings account
5. Capital gains tax income brackets, estate and gift tax limits, and kiddie tax 
6. Alternative Minimum Tax exemption amounts, household help tax issues, and 2025 Social Security wage base
7. International worker tax issues (foreign income, housing exclusions)
8. Retirement, pension plan contribution limits
9. Penalties, for both individuals and tax pros, for things such as failure to file a timely 1040 or certain information returns
10. Standard mileage deduction rates (issued separately on Dec. 19, 2024)

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