2025 Income Tax Brackets Were Just Released. Where Do You Fall?

For many Americans, November is much too early to start thinking about filing their tax returns. However, the IRS recently announced changes to the tax code that will affect earners throughout the new year. These new rates may not apply until Jan. 1, but they could affect how Americans earn, save, and spend in 2025.

What's changed and what can you expect to pay? Read on to find out.

Higher income thresholds

Let's be clear: taxes are not dropping across the board in 2025. The tax rates shown below are the same as they were in 2024 and will still apply to filers next year. This may change with upcoming legislation, but for now, many filers can expect to pay the same marginal income tax rate as in previous years.

However, that does not rule out tax relief for many Americans, as the income thresholds to qualify for each tax bracket will increase next year. For example, a single earner with taxable income of $48,000 would find themselves in the 22% marginal tax bracket in 2024. But the same earner would be in the 12% marginal tax bracket in 2025.

This change in income thresholds creates an opportunity for workers to optimize their tax liability. If you're in a lower tax bracket in 2025, you might consider increasing your Roth IRA or HSA contributions, which will be taxed at a lower rate than in 2024. If you're slightly above an income threshold, you might reduce your taxable income by increasing your tax-deductible contributions to a traditional IRA or 401(k).

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A new standard deduction

Another factor in how much Americans will owe lies in the standard deduction. This deduction is used by the vast majority of Americans and gives a filer a "haircut" on how much of their income is taxable. Changes to tax bracket thresholds are helpful for taxpayers, but a higher standard deduction, which cuts down on the total dollars that are taxed, can have a greater impact for some.

The standard deduction is the largest deduction available to many taxpayers, and can greatly reduce or even eliminate a filer's bill. In 2024, the standard deduction is $14,600 for single filers and $29,200 for married taxpayers filing jointly. In 2025, the deduction will increase almost 3% to $15,000 for single taxpayers and $30,000 for married, joint-filing taxpayers.

Some taxpayers elect to itemize deductions in order to minimize their tax bill. Itemized deductions can include state and local income taxes paid during the tax year, and could amount to a greater total deduction than the standard deduction. Itemizing deductions can be complicated, and taxpayers should consult with a qualified tax advisor before taking this route.

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Change on the horizon

While changes to marginal tax brackets and the standard deduction are meaningful to many Americans, they are not a significant change to the tax code itself. Since the 2017 Tax Cuts and Jobs Act, the tax code has remained largely unchanged outside of annual inflation adjustments. Throughout the life of the current tax code, the strategies used by taxpayers to minimize taxes have largely remained the same.

However, that could all change next year, when the tax provisions of the Tax Cuts and Jobs Act are set to expire. While the tax code could be extended as is, there seems to be an appetite on both sides of the aisle to substantially change tax law. Members of the 119th Congress, including some who are seeking re-election this November, will ultimately be those who pass the next tax act into law.

Thanks to increased tax bracket thresholds, Americans may find themselves paying less in taxes on more income next year. The standard deduction will further help an estimated 9 in 10 filers to reduce their taxable income. However, taxpayers should be aware that the tax code is likely to change in future years, and should consult with a qualified tax advisor ahead of filing.