Americans now have a better sense of what their tax situation will look like in 2025, thanks to newly announced adjustments from the IRS. These changes, which include updates to standard deductions and income tax brackets, are a direct response to the ongoing economic issue that’s been dominating headlines: inflation.
“The seven tax brackets are all indexed higher,” said Jim Buffington, a CPA at Intuit. He added that, “90% of taxpayers use the standard deduction in their tax returns, and that deduction is going to rise by $400 for single filers and $800 for married couples filing jointly.”
These changes are designed to ensure that the government doesn’t take a larger portion of your earnings than it should. Alan Auerbach, an economist at UC Berkeley, explained that the adjustments are based on a 2.8% inflation rate.
“If your income went up by 2.8%, it really didn’t go up at all, because the cost of the things you’re buying also went up by 2.8%,” Auerbach said.
The tax system adjusts accordingly to account for changes in real income due to rising prices. Alex Durante from the Tax Foundation pointed out, “The goal of these inflation adjustments is to keep the tax code consistent, so tax liabilities don’t increase unnecessarily.”
Without these adjustments, taxpayers could be pushed into higher tax brackets, even if their purchasing power hasn’t improved. This system helps prevent taxpayers from paying more simply because of inflation.
