Making Money host Charles Payne reveals how much the top 1% actually pay in taxes.
The Internal Revenue Service (IRS) on Tuesday announced its inflation adjustments to tax brackets and deductions for the 2025 tax year, potentially giving Americans a chance to increase their take-home pay next year.
Each year, the IRS updates the federal income tax bracket as well as the standard deduction and other tax policies to avoid a phenomenon known as “bracket creep,” which occurs when taxpayers are pushed into higher tax brackets due to increasing income despite their purchasing power being unchanged or reduced because of high inflation.
While the IRS goes through the process of making inflation adjustments annually, the increases are more significant and impactful for taxpayers during periods of high inflation.
This year, the IRS is shifting brackets higher by about 2.75%. By comparison, last year’s adjustment was about 5.4% – which reflects the elevated inflation that was prevailing in the U.S. economy in the preceding year in comparison with the past year.
CHAMBER OF COMMERCE WADES INTO ELECTION SEASON BY SPOTLIGHTING RISK OF 2025 TAX HIKES
The IRS released its inflation adjustments to the tax code for the 2025 tax year. (Photo by J. David Ake/Getty Images / Getty Images)
The higher thresholds for where various tax rates take effect could result in savings for millions of workers across all income brackets. Here’s a look at the changes unveiled by the IRS that will take effect for the 2025 tax year and returns that are filed in 2026.
Standard deduction:
The standard deduction, which reduces the amount of income Americans must pay taxes on, is claimed by a majority of taxpayers.
It’s set to increase by $400 to $15,000 for single taxpayers, while it will increase by $800 to $30,000 for married taxpayers who file returns jointly.
Heads of households will have a standard deduction of $22,500 for tax year 2025, up $600 from this year.
MYSTERIOUS $7B ESTATE TAX PAYMENT SPURS QUESTIONS ABOUT SOURCE OF FUNDS
The IRS updates tax policies for inflation to prevent a phenomenon known as “bracket creep.” (Photo by BRENDAN SMIALOWSKI/AFP via Getty Images / Getty Images)
Tax brackets for single individuals:
The IRS is increasing its tax brackets by about 2.75% for both individual and married filers across various income levels in tax year 2025:
- 10%: Taxable income up to $11,925
- 12%: Taxable income over $11,925
- 22%: Taxable income over $48,475
- 24%: Taxable income over $103,350
- 32%: Taxable income over $197,300
- 35%: Taxable income over $250,525
- 37%: Taxable income over $626,350
Tax brackets for joint filers:
- 10%: Taxable income up to $23,850
- 12%: Taxable income over $23,850
- 22%: Taxable income over $96,950
- 24%: Taxable income over $206,700
- 32%: Taxable income over $394,600
- 35%: Taxable income over $501,050
- 37%: Taxable income over $751,600
IRS APOLOGIZES TO KEN GRIFFIN AND THOUSANDS OF AMERICANS FOR TAX DATA LEAK
The IRS’ inflation adjustments apply to tax brackets, credits and deductions as well as other tax provisions. (Zach Gibson/Getty Images / Getty Images)
Other tax provisions:
The IRS also increased the thresholds for other tax deductions and credits to account for inflation, including the Earned Income Tax Credit (EITC) which will rise to $8,046 in tax year 2025 for qualifying taxpayers with three or more qualifying children. That’s up from $7,830 in tax year 2024.
Exception amounts for the alternative minimum tax increased to $88,100 for individuals and begins to phase out at $626,350 for unmarried individuals. For married couples who file joint returns, the exemption rises to $137,000 and phases out at $1,252,700.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
Workers can contribute an extra $100 to health flexible spending accounts, with the dollar limitation for employee salary reductions for contributions rising to $3,300. The minimum carryover amount for plans that allow unused funds to carry over to the following year will also rise to $660.
Credit: Source link
