QThe inflation rate measures how much the general price level of goods and services in an economy increases over a specific period, usually a year. Inflation is measured by calculating the percentage change in a price index, typically the Consumer Price Index (CPI), which tracks the cost of a representative basket of goods and services purchased by average households.
However, when inflation is high, IRS inflation adjustments can increase the value of various federal tax credits and deductions.
Federal Income Tax Brackets
Perhaps the most significant adjustment is to the income tax brackets. Each year, the income thresholds for each federal tax bracket are increased to reflect inflation.
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Even with high inflation, though, the seven federal income tax rates generally don’t change. However, the federal income tax brackets tied to those rates shift.
The Standard Deduction
The standard deduction, which reduces your taxable income, also increases with inflation.
The rate for single filers will rise from $14,259 in 2024 to $15,000 in 2025.
The rate for married couples filing jointly will increase from $28,500 in 2024 to $30,000 in 2025.