Understanding the Silver Lining of Inflation: Lesser Taxes in 2025

By Ethan Bennett Oct 24, 2024

Updates by the IRS to adjust for inflation might mean reduced taxes in 2025, given your income and deductions remain constant.

The Internal Revenue Service (IRS) announced on Tuesday that certain elements of federal income taxes, such as tax brackets and the standard deduction, have been revised to adjust for inflation. These updates will apply to earnings made in 2025 and will be relevant for returns filed in 2026.

The standard deduction has increased by $400, bringing the total to $15,000 for an individual and double that amount for married couples filing jointly. This hike in the standard deduction implies a larger portion of your income will be exempt from tax liability.

Furthermore, alterations have been made to the tax brackets, impelling you to earn approximately 2.8% more this year than the previous year before your income is subjected to a higher tax rate.

The IRS modifies crucial values in the tax code every year in line with changes in the cost of living, using a key inflation measure called the Chained Consumer Price Index. Given the dramatic deceleration in inflation since 2022, the current year's adjustments were rather minimal compared to recent years and do not significantly deviate from the typical pre-pandemic changes.

Besides adjusting the tax brackets, there were alterations to the alternative minimum tax exemptions, earned income tax credits, and several other tax-related aspects.

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