IRS announces new tax brackets and deductions based on inflation rate
IRS announces new tax brackets and deductions based on inflation rate
Americans have a better idea of the taxes they’ll be paying in 2025 thanks to new standard deductions and income tax brackets announced by the IRS. These annual changes are based on what’s been the hottest topic in economics for a few years now: inflation.
“The seven tax brackets, they’re all indexed higher,” said Jim Buffington, a CPA at Intuit. “And 90% of taxpayers use the standard deduction in their tax returns … that deduction is going to rise $400 for single filers and $800 for married filing joint filers.”
Those changes are so the government doesn’t take a bigger bite out of your sandwich than it should. They’re adjusted this year to an inflation rate of 2.8% said Alan Auerbach at UC Berkeley.
“If your income went up by 2.8% it really didn’t go up at all, because the cost of the things you’re buying also went up by 2.8%,” he said.
The tax system adjusts to reflect that change in real income due to price rises. Alex Durante with the Tax Foundation think tank stated, “The idea with the inflation adjustments is holding this tax code constant, like, how do we adjust for inflation, so that the tax liabilities don’t change?”
If we didn’t make these adjustments, taxpayers would get bumped up to higher tax brackets even if their purchasing power didn’t go up.
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