Joe Light

The Internal Revenue Service on Tuesday announced higher tax brackets for 2025. As expected, the brackets will move up the smallest amount in years.

The annual adjustment is tied to inflation, which has dropped sharply in 2024 after running hot for a couple of years prior. This year, the adjustment came in at about 2.8%.

The top marginal rate of 37% will now apply to single filers who make more than $626,350 a year and to married couples making more than $751,600. The lowest rate of 10% applies to single filers making $11,925 or less and joint filers making $23,850 or less.

The IRS also adjusted upward the amount taxpayers can make without having to pay capital-gains taxes. For 2025, single filers can enjoy a 0% rate if they make up to $48,350 or up to $96,700 if married, filing jointly.

The standard deduction was also raised slightly to $15,000 for individuals and to $30,000 for those married, filing jointly. Some tax provisions, such as the $10,000 deduction limit for state and local income taxes (SALT), don't adjust for inflation.

While the size of the 2025 adjustments has been widely anticipated, given cooling inflation, the real uncertainty comes at the end of next year, when key provisions of the 2017 Tax Cuts and Jobs Act are slated to expire.

Former President Donald Trump has said he wants to extend the tax cuts in his signature legislative achievement, while Vice President Kamala Harris says she'd only extend them for households making less than $400,000. Lawmakers in high-tax states in both parties have said they want to do away with the $10,000 SALT deduction limit, which would be a boon for higher earners.

If the tax cuts were simply allowed to expire, the top federal marginal tax rate would rise to 39.6%, and apply to lower income levels, among other adjustments.

Write to Joe Light at joe.light@barrons.com

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October 22, 2024 11:55 ET (15:55 GMT)

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