How Are Taxes Changing for 2025?

A number of changes are happening in the tax code for 2025. Here, Fidelity explains some of the changes, writing:

With inflation slowing, taxpayers get a smaller inflation adjustment to tax brackets for 2025 than 2024, but may still see a tax cut.

The Internal Revenue Service (IRS) has released adjustments to tax brackets for 2025, adding thousands of dollars to most marginal tax brackets, and potentially protecting more of your income from taxes this year. The roughly 2.7% inflation adjustment is lower than the 5.4% increase for 2024, and much lower than the 7% increase for 2023.

Additionally, the standard deduction will rise. For married couples the bump up is $800 to $30,000. For single filers, it’s an increase of $400 to $15,000.

Why do tax brackets change?

The US has a progressive tax system, meaning as someone’s income rises, it’s taxed at a gradually increasing rate corresponding to 7 brackets, which rise like a set of steps. Every year the IRS announces changes to the tax brackets. Those changes are pegged to inflation, and the adjustments occur at roughly the same time the federal government makes changes to Social Security payments through the cost-of-living adjustment (COLA).

Source: Internal Revenue Service

How the 2024 and 2025 tax brackets might affect you

Here’s how the changes might play out for an individual filer who earns $100,000 both in 2024 and 2025, and who takes the standard deduction in both years.

For illustrative purposes only. Does not consider state and local taxes. Example assumes the individual takes the standard deduction for single filers.

The $227 in savings is the result of the higher standard deduction, as well as a lower effective tax rate (the average tax rate applied to your income.) As brackets widen, more of your taxable income is taxed at a lower rate.

Even though the inflation adjustment to tax brackets is smaller than it has been in recent years, many have experienced earnings growth over the past year. Real weekly earnings increased by on average 1.8%. On average, taxpayers may expect to see lower tax bills as the tax brackets and standard deduction rose more than earnings.¹

Action Line: Be aware of the changes in the tax code that affect you, especially if you’re taking an RMD. Consider consolidating your retirement life at Fidelity. When you want to talk about making the change, email me at ejsmith@yoursurvivalguy.com. But only if you’re serious.