The IRS announced on October 22 that the standard deduction for single filers and married couples filing separately will increase to $15,000 for the 2025 tax year, up $400 from the 2024 tax year. For married couples filing jointly, the standard deduction will rise to $30,000, which is an increase of $800 from the previous year. Additionally, the standard deduction for head of household filers will rise to $22,500, reflecting a $600 increase.

This increase in the standard deduction comes as the IRS adjusts for inflation, a practice they undertake each tax year. Although inflation rates have recently shown a downward trend, the adjustments for 2025 are lower than the increases observed in recent years. These changes will take effect for tax filings starting in the 2026 tax season.

Moreover, all seven federal tax brackets have also been adjusted upward. The highest tax rate remains at 37%. For the 2025 tax year, single filers earning over $626,350 and married couples filing jointly with incomes exceeding $751,600 will fall into this top tax bracket. In comparison, for 2024, the threshold for single filers is $609,350.

For single filers, the other income thresholds are as follows: those earning over $250,525 will be taxed at 35%; incomes over $197,300 will incur a 32% tax rate; over $103,350 will see a 24% rate; incomes above $48,475 will face a 22% rate; those earning over $11,925 will be taxed at 12%; and incomes at or below $11,925 will incur a 10% tax rate.

For married couples filing jointly, the income thresholds are: those earning over $501,051 will be taxed at 35%; incomes over $394,601 will face a 32% tax; over $206,701 will see a 24% rate; incomes above $96,951 will incur a 22% rate; those earning over $23,851 will be taxed at 12%; and couples with income at or below $23,850 will face a 10% tax rate.

In September, the U.S. inflation rate dropped to its lowest point in over three years, providing a glimmer of hope in some economic indicators. However, citizens still feel pressure from rising costs of essential goods, such as healthcare, clothing, car insurance, and airline tickets. The core inflation rate remains elevated, reflecting the ongoing economic challenges.

Earlier in October, the Social Security Administration announced a 2.5% cost-of-living adjustment (COLA) effective January next year, equating to an average increase of over $50 monthly in Social Security checks for millions. The trend in this year’s COLA adjustment aligns with the recent adjustments to the standard deduction, as they both fall below the increases seen in the past two years. In 2023, due to the highest inflation rate in 40 years, the COLA surged by 8.7%, marking a historic high, while in 2024 it increased by 3.2%. Next year’s increase is expected to be smaller, reflecting the easing inflation situation.