IRS Inflation Adjustments, Bracket Changes: What To Know In NJ

NEW JERSEY — The IRS recently announced new federal income tax brackets and raised the standard deduction to adjust for inflation, but Garden State tax filers won’t be able to take advantage of them until they file tax year 2025 returns in early 2026.

The IRS announces inflation adjustments every fall for the following tax year. The idea is to protect against what’s called “bracket creep” — a situation where inflation pushes tax filers into a higher tax bracket.

Nationally, personal income averaged about $65,470 in tax year 2022, the latest data available in a federal government Bureau of Economic Analysis report. That compares with a 2022 average of $77,199 in NJ, up from $76,079 in tax year 2021 and $70,957 in tax year 2020.

Below county ranking by income percent change between 2021 and 2022:

1. Hunterdon
2. Morris
3. Somerset
4. Monmouth
5. Bergen
6. Sussex
7. Union
8. Mercer
9. Warren
10. Middlesex
11. Essex
12. Burlington
13. Gloucester
14. Hudson (Decrease)
15. Ocean (Decrease)
16. Camden (Decrease)
17. Salem (Decrease)
18. Passaic (Decrease)
19. Atlantic (Decrease)
20. Cape May (Decrease)
21. Cumberland (Decrease)

Those figures don’t reflect the real-life experiences of many of New Jersey residents, whose salaries failed to keep pace with rising inflation, especially during the economic upheaval of the pandemic.

Bracket adjustments have been larger in the past few years because of inflation, reaching 7 percent in 2023 and 5.4 percent in the current year, but with inflation cooling, income thresholds for tax year 2025 will go up by only 2.8 percent.

The standard deduction will rise to $30,000 for married couples filing jointly, up from $29,200 in 2024. Single filers can claim $15,000 in tax year 2025, an increase from $14,600.

The income thresholds for each bracket were also raised, with the top rate of 37 percent applying to individuals with taxable income of $626,350 or higher, or for married couples filing jointly who earn $751,600 or in 2025.

The IRS also made dozens of changes in various other tax provisions, including long-term capital gains, estate and gift tax exemptions, eligibility for child tax credits, the alternative minimum tax, eligibility for earned income tax credits, and flexible spending account limits.

Here’s how tax brackets will change from the current year to the 2025 filing year:

• 37 percent for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly).
• 35 percent for incomes over $250,525 ($501,050 for married couples filing jointly).
• 32 percent for incomes over $197,300 ($394,600 for married couples filing jointly).
• 24 percent for incomes over $103,350 ($206,700 for married couples filing jointly).
• 22 percent for incomes over $48,475 ($96,950 for married couples filing jointly).
• 12 percent for incomes over $11,925 ($23,850 for married couples filing jointly).
• 10 percent for incomes of $11,925 or less ($23,850 or less for married couples filing jointly).