2025 Tax Brackets: IRS Makes Annual Adjustments

On a yearly basis, the Internal Revenue Service (IRS) adjusts more than 60 tax provisions for inflation to prevent what is called “bracket creep.” Bracket creep occurs when inflation, rather than real increases in income, pushes people into higher income tax brackets or reduces the value they receive from credits and deductions.

The IRS previously used the Consumer Price Index (CPI) as a measure of inflation prior to 2018. However, with the Tax Cuts and Jobs Act of 2017 (TCJA), the IRS now uses the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly.

The new inflation adjustments are for tax year 2025, for which taxpayers will file tax returns in early 2026. On average, tax parameters that are adjusted for inflation will increase by about 2.8 percent.

2025 Federal Income Tax Brackets and Rates

In 2025, the income limits for all tax brackets and all filers will be adjusted for inflation and will be as follows (Table 1). The federal income tax has seven tax rates in 2025: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. The top marginal income tax rate of 37 percent will hit taxpayers with taxable income above $626,350 for single filers and above $751,600 for married couples filing jointly.

2025 Federal Income Tax Brackets and Rates for Single Filers, Married Couples Filing Jointly, and Heads of Households

Source: Internal Revenue Service, "Revenue Procedure 2024-40."

Standard Deduction and Personal Exemption

The standard deduction will increase by $400 for single filers and by $800 for joint filers (Table 2). Seniors over age 65 may claim an additional standard deduction of $2,000 for single filers and $1,600 for joint filers.

The personal exemption for 2025 remains at $0 (eliminating the personal exemption was part of the Tax Cuts and Jobs Act of 2017 (TCJA).

Table 2. 2025 Standard Deduction

Source: Internal Revenue Service, "Revenue Procedure 2024-40."

Alternative Minimum Tax

The alternative minimum tax (AMT) was created in the 1960s to prevent high-income taxpayers from avoiding the individual income tax. This parallel income tax system requires high-income taxpayers to calculate their tax bill twice: once under the ordinary income tax system and again under the AMT. The taxpayer then needs to pay the higher of the two.

The AMT uses an alternative definition of taxable income called alternative minimum taxable income (AMTI). To prevent low- and middle-income taxpayers from being subject to the AMT, taxpayers are allowed to exempt a significant amount of their income from AMTI. However, the exemption phases out for high-income taxpayers. The AMT is levied at two rates: 26 percent and 28 percent.

The AMT exemption amount for 2025 is $88,100 for singles and $137,000 for married couples filing jointly (Table 3).

Table 3. 2025 Alternative Minimum Tax (AMT) Exemptions

Source: Internal Revenue Service, "Revenue Procedure 2024-40."

In 2025, the 28 percent AMT rate applies to excess AMTI of $239,100 for all taxpayers ($119,550 for married couples filing separate returns).

AMT exemptions phase out at 25 cents per dollar earned once AMTI reaches $626,350 for single filers and $1,252,700 for married taxpayers filing jointly (Table 4).

Table 4. 2025 Alternative Minimum Tax (AMT) Exemption Phaseout Thresholds

Source: Internal Revenue Service, "Revenue Procedure 2024-40."

Earned Income Tax Credit

The maximum earned income tax credit (EITC) in 2025 for single and joint filers is $649 if the filer has no children (Table 5). The maximum credit is $4,328 for one child, $7,152 for two children, and $8,046 for three or more children.

Table 5. 2025 Earned Income Tax Credit (EITC) Parameters

Source: Internal Revenue Service, "Revenue Procedure 2024-40."

Child Tax Credit

The maximum child tax credit is $2,000 per qualifying child and is not adjusted for inflation. The refundable portion of the child tax credit is adjusted for inflation and will remain at $1,700 for 2025.

Capital Gains Tax Rates and Brackets (Long-Term Capital Gains)

Long-term capital gains face different brackets and rates than ordinary income (Table 6.)

Table 6. 2025 Capital Gains Tax Brackets

Source: Internal Revenue Service, "Revenue Procedure 2024-40."

Qualified Business Income Deduction (Sec. 199A)

The Tax Cuts and Jobs Act of 2017 (TCJA) includes a 20 percent deduction for pass-through businesses. Limits on the deduction begin phasing in for taxpayers with income above $197,300 (or $394,600 for joint filers) in 2025 (Table 7).

Table 7. 2025 Qualified Business Income Deduction Thresholds

Source: Internal Revenue Service, "Revenue Procedure 2024-40."

Annual Exclusion for Gifts

In 2025, the first $19,000 of gifts to any person are excluded from tax, up from $18,000. The exclusion is increased to $190,000 from $185,000 for gifts to spouses who are not citizens of the United States.