Why your paycheck may grow in 2025, even without a raise

(NEXSTAR) — Tax brackets are changing, the Social Security retirement age is rising, and certain Medicare premiums are going up. Another thing set to increase? Maybe your paycheck.

The potential bump isn't limited to those getting a raise at the start of 2025, either.

As it does annually, the IRS unveiled dozens of changes to various tax provisions that will impact 2025 (and when we file taxes in 2026). Those updates, namely the rising standard deduction, will influence your paycheck — unless you are receiving a raise of more than 2.7%.

Why your paycheck may be on the rise

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).

What to do with the 'extra' funds

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.

Last week, the Federal Reserve indicated it will likely cut rates more gradually in 2025 than it had previously projected, despite elevated inflation pressures and concern that President-elect Donald Trump's policies could fuel inflation.

The Associated Press contributed to this report.

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