(NEXSTAR) — While there’s plenty of time left in November, you may already have something exciting to look forward to in 2025: a slightly larger paycheck, even without a raise.
Why? Thank the IRS.
As it does every year, the agency recently announced roughly five dozen changes to various tax provisions that will impact 2025 (and when we file taxes in 2026). Among the notable changes were standard deductions rising by 2.7% and individual tax brackets shifting.
Like others before it, the IRS’s changes are meant to combat inflation. They are, however, smaller than we saw in 2024 and much smaller than in 2023.
Those changes may have an impact on your paycheck, putting more money in your pocket — unless you got a raise of more than 2.7%, then that will also give you a boost.
IRS tax provision updates can help cut back on “bracket creep,” which occurs when inflation moves you into a higher income tax bracket or reduces how beneficial credits, deductions, and exemptions are, according to the Tax Foundation.
Say, for example, you are making $101,000 this year. You fall into the third tax bracket, meaning you’re taxed 10% on the first $11,600 you earn; 12% on the chunk between $11,601 and $47,149; then 22% on what you earn between $47,150 and $100,524; and 24% on every dollar above that.
If you don’t get a raise going into 2025, and remain at $101,000, you would not reach the 24% tax bracket. Instead, you would be taxed 10% on the first $11,925 you earn; 12% on the income between that threshold and $48,475; then 22% on the rest. (This is a simple example that did not take into account the standard deduction and other tax-related aspects.)
If the brackets did not adjust, you would be stuck with a higher tax liability, despite your $101,000 salary having less buying power in 2025 because of inflation, the Tax Foundation explains. But, because the tax brackets are adjusting, you stand a chance of seeing less money withheld from your paycheck for federal taxes (your employer is able to calculate how much is withheld using your W2 and IRS documents).
Even though your paycheck may grow in 2025, financial experts say it’s important to remember you aren’t exactly receiving “extra” funds — they are intended to offset inflation.
Inflation is down slightly in 2024 to 2.4%, U.S. Labor Department data from the previous 12 months, ending in September, shows. That’s an improvement over 2023’s 3.4% and 6.5% in 2022.
