In response to rising inflation, the Internal Revenue Service (IRS) has announced adjustments to the federal income tax brackets for 2025. This means that taxpayers will pay less in taxes on their earned income compared to previous years.
The IRS makes these adjustments annually based on the rate of inflation, as measured by the Consumer Price Index (CPI). The CPI tracks the changes in prices for goods and services purchased by consumers. When inflation rises, the value of the dollar decreases, which means that people can buy less with the same amount of money. As a result, the IRS increases the income thresholds for each tax bracket to ensure that taxpayers are not pushed into higher tax brackets due to inflation.
