IRS releases tax inflation adjustments for tax year 2025 | Internal Revenue Service

The IRS has announced the new tax brackets for the 2025 tax year, which will apply to income earned in 2025 and reported in 2026. The adjustments reflect an approximate 2.8% increase from the previous year, primarily aimed at countering "bracket creep" due to inflation. This is subject to change with legislative increases or decreases in 2025.

The estimated Cost-of-Living Adjustment (COLA) for Social Security, Military Disability & Retirement benefits in 2025 is 2.5%.

Several important financial and economic measures are not adjusted for inflation, which can lead to discrepancies in understanding their real value over time. Here are some notable examples:

### **1. Child Tax Credit**
The **child tax credit** remains fixed at $2,000 per qualifying child under age 17, without annual adjustments for inflation. This means that as the cost of living increases, the value of this credit effectively decreases in real terms for families.

### **2. Estate Tax Exemption**
The **lifetime estate tax exemption** amount does not automatically adjust for inflation. For example, the exemption was set at $12.06 million for 2022 and remained unchanged in subsequent years unless new legislation is enacted.

### **3. Gift Tax Exclusion**
The annual **gift tax exclusion** is another example; it has been set at $15,000 since 2018 and does not increase with inflation, limiting how much individuals can gift without incurring taxes.

### **4. Social Security Benefits**
While Social Security benefits are adjusted annually for cost-of-living increases, the formula used to determine these adjustments (the CPI-W) may not fully capture the inflation experienced by retirees, particularly in areas like healthcare.

### **5. Federal Minimum Wage**
The federal minimum wage has not been adjusted for inflation since 2009, meaning its purchasing power has significantly decreased over time, impacting low-income workers.

### **6. Certain Tax Deductions and Credits**
Many tax deductions and credits, such as the **standard deduction** for certain categories or specific business deductions, may not be adjusted regularly for inflation, leading to a reduction in their real value.

These examples illustrate how fixed financial measures can lead to increased burdens on taxpayers and consumers as inflation erodes purchasing power over time.


The IRS has announced the new tax brackets for the 2025 tax year, which will apply to income earned in 2025 and reported in 2026. The adjustments reflect an approximate 2.8% increase from the previous year, primarily aimed at countering "bracket creep" due to inflation.

## **2025 Federal Income Tax Brackets**

### **Marginal Tax Rates**
The federal income tax rates remain unchanged at 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The adjusted income thresholds for each filing status are as follows:

| **Tax Rate** | **Single Filers** | **Married Filing Jointly** | **Heads of Households** |
|--------------|-------------------------|-----------------------------|-----------------------------|
| **10%** | $0 to $11,925 | $0 to $23,850 | $0 to $17,000 |
| **12%** | $11,925 to $48,475 | $23,850 to $96,950 | $17,000 to $64,850 |
| **22%** | $48,475 to $103,350 | $96,950 to $206,700 | $64,850 to $103,350 |
| **24%** | $103,350 to $197,300 | $206,700 to $394,600 | $103,350 to $197,300 |
| **32%** | $197,300 to $250,525 | $394,600 to $501,050 | $197,300 to $250,500 |
| **35%** | $250,525 to $626,350 | $501,050 to $751,600 | $250,500 to $626,350 |
| **37%** | Over $626,350 | Over $751,600 | Over $566,700 |

### **Standard Deductions**
The standard deductions for various filing statuses will also increase:

| **Filing Status** | **2024 Standard Deduction** | **2025 Standard Deduction** |
|-----------------------------------------|------------------------------ |------------------------------|
| Single; Married Filing Separately | $14,600 | $15,000 |
| Married Filing Jointly; Surviving Spouse | $29,200 | $30,000 |
| Head of Household | $21,900 | $22,500 |

### **Additional Changes**
- The annual gift tax exclusion will rise to **$19,000** per person.
- The lifetime estate tax exclusion will increase to **$13.9 million**, up from **$13.6 million** in 2024. [6].

These adjustments are designed to keep pace with inflation and help taxpayers maintain their purchasing power without being pushed into higher tax brackets due solely to cost-of-living increases.

Citations:
[3] https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024
[4] https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023
[6] https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025
[7] https://taxfoundation.org/data/all/federal/2025-tax-brackets/