In 2025, you might notice a slight increase in your first paycheck of the year. The IRS announced adjustments to the federal income tax brackets in October, increasing each income threshold by about 2.8%. This change follows last year’s increase of approximately 5.4%. These adjustments are designed to account for inflation, although the rate of increase this year is less dramatic compared to the previous year.
Impact of Smaller Inflation Adjustments
Brian Long, a certified public accountant and senior tax advisor at Wealth Enhancement in Minneapolis, explained that the inflation adjustments for 2025 are “much less drastic” due to a cooling in inflation rates. If your salary remains similar to what it was in 2024, these smaller adjustments could still lead to a slightly higher take-home pay. This is because the new tax brackets could place you in a lower tax bracket relative to your earnings.
Understanding Take-Home Pay Increases
Take-home pay, or your earnings after taxes and other deductions, could be more than it was last year. This is due to both the adjustments in the tax brackets and the increase in the standard deduction amounts for 2025. For married couples filing jointly, the standard deduction has risen to $30,000 from $29,200. For single filers, the deduction is now $15,000, up from $14,600. These increases mean that less of your income will be subject to federal taxes, potentially lowering your overall tax liability and increasing your paycheck.
Balancing Out with Rising Costs
Despite these favorable tax changes, many Americans might not feel a significant increase in their disposable income due to rising costs in other areas. Sheneya Wilson, a CPA and founder of Fola Financial in New York, points out that increases in the costs of groceries, gasoline, and new cars can negate the extra money from tax adjustments. She notes, “It ends up nearly balancing out,” emphasizing that the benefits from tax changes might be offset by these higher expenses.
Importance of Monitoring Tax Withholdings
Wilson also stresses the importance of regularly monitoring your state and federal income tax withholdings, especially if you experience significant income or life changes throughout the year. Properly managing your withholdings can prevent financial surprises at tax time. Typically, if you withhold too much from your paycheck, you might receive a refund during tax season. Conversely, not withholding enough could result in owing more taxes. Regular checks can help ensure that your withholdings accurately reflect your financial situation.