The tax bracket changes could lead to a higher paycheck for you in 2025! Find out why!
In October, the IRS announced a 2.8% increase in income thresholds for the 2025 tax bracket, which means that when you receive your first paycheck of the year you might notice a small increase in your take-home pay. This adjustment, however, is smaller compared to the 5.4% increase made in 2024.
According to Brian Long, a certified public accountant and senior tax advisor at Wealth Enhancement in Minneapolis, this year’s inflation adjustment is “much less drastic” because inflation has been cooling down.
Why Your Paycheck Could Increase
If your 2025 wages are similar to what you earned in 2024, your take-home pay, which is what’s left after taxes and benefit deductions, might see a slight boost. The amount depends on your tax withholdings, Long noted.
“When all the tax brackets go up, but your salary stays the same, relatively, that puts you on a lower rung of the ladder”, he explained.
Federal tax brackets determine how much you owe for each portion of your taxable income. Even if you earn slightly more in 2025, you could still end up paying less in taxes than in 2024, because the standard deduction has also increased, Long added.
Tax Bracket Changes In 2025
The following changes for the 2025 tax year will apply to income tax returns filed during the 2026 tax season. Here are they:
Standard Deductions
- Single taxpayers and married individuals filing separately: the standard deduction increases to $15,000 in 2025, up by $400 from 2024.
- Married couples filing jointly: the deduction rises to $30,000, an $800 increase compared to 2024.
- Heads of households: the deduction is set at $22,500, an increase of $600 from the previous year.
Marginal Tax Rates
The top federal tax rate of 37% applies to:
- Single taxpayers with incomes above $626,350.
- Married couples filing jointly with incomes over $751,600.
Other tax rates and income thresholds for 2025 are as follows:
- 35%: Single incomes above $250,525 ($501,050 for married couples filing jointly).
- 32%: Single incomes above $197,300 ($394,600 for married couples filing jointly).
- 24%: Single incomes above $103,350 ($206,700 for married couples filing jointly).
- 22%: Single incomes above $48,475 ($96,950 for married couples filing jointly).
- 12%: Single incomes above $11,925 ($23,850 for married couples filing jointly).
- 10%: Single incomes of $11,925 or less ($23,850 or less for married couples filing jointly).
Alternative Minimum Tax (AMT) Exemptions
- Unmarried individuals: the exemption increases to $88,100, phasing out at $626,350.
- Married couples filing jointly: the exemption rises to $137,000, phasing out at $1,252,700.
- Married individuals filing separately: the exemption is $68,650.
Earned Income Tax Credit (EITC)
For taxpayers with three or more qualifying children, the maximum EITC increases to $8,046, up from $7,830 in 2024. A detailed table outlines EITC amounts for other categories and phase-out limits.
Qualified Transportation Fringe Benefit
The monthly limit for both qualified transportation and parking benefits rises to $325, up from $315 in 2024.
Health Flexible Spending Accounts (FSA)
- The maximum employee contribution for health FSAs increases to $3,300 in 2025, up from $3,200 in 2024.
- For plans allowing carryover of unused amounts, the maximum carryover rises to $660, an increase of $20 from 2024.
Medical Savings Accounts (MSA)
- Self-only coverage: annual deductibles must range between $2,850 (a $50 increase) and $4,300 (a $150 increase). The maximum out-of-pocket expense rises to $5,700, up from $5,550 in 2024.
- Family coverage: deductibles must range between $5,700 (up from $5,550) and $8,550 (up by $200). The maximum out-of-pocket expense limit is $10,500, up from $10,200 in 2024.
Foreign Earned Income Exclusion
The exclusion amount for foreign earned income increases to $130,000, up from $126,500 in 2024.
Estate Tax and Gift Exclusions
- Estate tax exclusion: for individuals who pass away in 2025, the exclusion amount increases to $13,990,000, up from $13,610,000 in 2024.
- Gift tax exclusion: the annual exclusion for gifts rises to $19,000, up from $18,000 in 2024.
Adoption Credit
The maximum adoption credit for a child with special needs increases to $17,280 in 2025, up from $16,810 in 2024. This credit also applies to qualified adoption expenses.