The IRS Has Released Its New Tax Brackets for 2025. Where Do You Fall?
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I'm Arianna Espudu for The Wall Street Journal, filling in for J.R. Whelan. We're still months away from tax season, but the IRS has released the new tax brackets and standard deductions for 2025. And it's the smallest increase in a few years.
The brackets going up a little means it takes more income to reach each higher tax bracket. So someone who makes about the same would owe just a little bit less in taxes. For example, someone earning $120,000 and then they take the standard deduction, they would owe about $400 less.
Wall Street Journal reporter Ashley Ebling joins me to break down some of the key changes after the break.
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What are the 2025 IRS tax bracket changes and when were they announced?
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The IRS has announced its new 2025 tax brackets. WSJ personal finance reporter Ashleya Ebling joins me. Ashleya, can you give me a quick 101 on how brackets work and why they're so important?
It's important to know where you fall because knowing your tax bracket can help you estimate how much you'll owe in taxes. and maybe you need to pay inestimated tax payments if you're a freelancer or consultant, any kind of gig income other than your W-2 job. There's seven different tax brackets that each have accompanying tax rates, and they range from 10% to 37% depending on your taxable income.
How do tax brackets work and why does your filing status matter?
There are different sets of brackets depending on your filing status, whether you're filing your tax return as an individual, head of household, or married, filing jointly or separately.
People throw around the word tax brackets a lot, especially as April comes around. Like, how can people sort of visualize these, sort of understand how important they are?
So one way is you could think of it like a ladder because it's a progressive tax system. Some of your incomes tax at the lowest rung at 10 percent, some tax at the next rung at 12 percent and so on, up to the 37 percent for the highest income people. The higher your income, the higher you move up the ladder, basically. And you keep paying at these progressively higher rates on that next slice of income. On to the 2025 brackets. What are the biggest changes? So the IRS announces these inflation adjustments every year to the brackets and the income ranges that make up the tax brackets. They make the announcement in the fall for the next year. This year's increase of about 2.8% is the slowest increase since 2021.
And is that keeping up with inflation?
It slightly outpaces the current inflation rate because inflation's been cooling. Just so we can clarify the timeline a bit here, these numbers are going to impact all the money you make next year. Right.
The tax season we're approaching, that covers the 2024 tax year. So these new numbers are for 2025.
So what does this mean for someone who is roughly going to make like the same amount that they made this year that they're going to make the same next year?
The brackets going up a little means it takes more income to reach each higher tax bracket. So someone who makes about the same would owe just a little bit less in taxes. For example, someone earning $120,000 and then they take the standard deduction, they would owe about $400 less.
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