IRS Raises Income Tax Deductions to Account for Inflation

The IRS will increase its income brackets and standard deduction amounts by 5.4% next year in order to keep up with the rising cost of living.

After the 2024 inflation adjustments, announced Thursday, the top tax rate of 37% will apply to individuals with taxable income above $609,350 and married couples who file jointly with taxable income over $731,200.

The other brackets for returns filed in 2025 are:

The 5.4% increase is the second-largest adjustment in the last three decades after the hikes for 2023, the Wall Street Journal reported. 

Standard deductions — meaning income you can shield from tax without itemizing — will increase by $750 to $14,600 for individuals, by $1,500 to $29,200 for married couples filing jointly, and by $1,100 to $21,900 for heads of household.

For people who itemize their deductions, the “no limitation” rule stemming from the Tax Cuts and Jobs Act still applies, the IRS said.

The maximum Earned Income Tax Credit amount will go up $400 to $7,830 for qualifying taxpayers who have three or more qualifying children.

The maximum credit allowed for adoption expenses increased $860 to $16,810, and the basic exclusion amount for the estates of people who have died will go up $690,000 to $13.6 million, the IRS said.