As 2025 approaches, you might see a slight boost in your paycheck, even if your salary stays the same—and you can thank the IRS for it.
The IRS recently released updates to around 60 tax provisions that will affect the 2025 tax year (the ones we file in 2026). Among these changes, the standard deduction will increase by 2.7%, and tax brackets will shift upward. These adjustments aim to counter inflation, though they’re smaller than those made in 2024 and much smaller than in 2023.
This means your paycheck may stretch a little further, especially if you didn’t receive a raise greater than 2.7%.
These annual adjustments help reduce the impact of “bracket creep”—the gradual shift into higher tax brackets due to inflation. Without these updates, a salary increase intended to keep up with inflation could push you into a higher tax bracket, effectively reducing your purchasing power.
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For example, if you earn $101,000 in 2024, you currently fall into the third tax bracket, which taxes you at 10% on the first $11,600, 12% on income up to $47,149, 22% on income up to $100,524, and 24% on anything above that. If you keep the same salary in 2025, you wouldn’t reach the 24% bracket due to the IRS adjustments: you’d pay 10% on the first $11,925, 12% up to $48,475, and 22% on the rest.
If the tax brackets stayed the same each year, you could owe more tax on the same income even as inflation erodes your buying power. The IRS updates, however, mean that a bit less could be withheld from your paycheck.
While this change can feel like extra money in your pocket, financial experts remind us that it’s more about preserving your spending power in the face of inflation, which has recently moderated. U.S. Labor Department data shows inflation at 2.4% for the year ending in September 2024, down from 3.4% in 2023 and 6.5% in 2022.
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(Image credit: Jobcase)
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