New Year, New Tax Brackets: What It Means for Your Wallet
As the first paycheck of 2025 rolls in, you might notice a slight increase in your take-home pay. The IRS has announced the federal income tax brackets for 2025, and they’re rising by approximately 2.8%. This adjustment is a response to the cooling inflation rate, which has been steadily decreasing since its peak in June 2022.
A Breather from Inflation
The consumer price index, a key measure of inflation, rose 2.7% in November 2024 compared to the previous year. This is a significant drop from the 9.1% peak in June 2022. As a result, the IRS has made smaller adjustments to the tax brackets this year.
What It Means for Your Paycheck
If your wages remain the same as last year, you might see a slight increase in your take-home pay. This is because the tax brackets have increased, but your salary has stayed the same. According to certified public accountant Brian Long, “When all the tax brackets go up, but your salary stays the same, relatively, that puts you on a lower rung of the ladder.”
The Standard Deduction Gets a Boost
The standard deduction has also increased for 2025. Married couples filing jointly can claim $30,000, up from $29,200 in 2024. Single filers can claim $15,000, a bump from $14,600. This means you might pay less in taxes in 2025 compared to 2024, even if you earn a little more.
But Will You Really Feel the Difference?
Despite the tax bracket changes, many Americans might not notice a significant increase in their take-home pay. Elevated prices for certain expenses, such as groceries, gasoline, and new cars, could offset the benefits of the tax bracket adjustments.
Monitoring Your Withholdings
It’s essential to keep an eye on your state and federal income tax withholdings throughout the year, especially during major income or life changes. If you withhold too much, you might be due for a refund. On the other hand, not withholding enough could result in taxes owed.
By understanding the new tax brackets and their impact on your paycheck, you can make informed decisions about your finances and plan for the year ahead.
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