black click pen on white paper by Leon Dewiwje courtesy of Unsplash.

IRS Announces 2025 Tax Adjustments: What You Need to Know

William Hardaway |
Categories
Tax Planning

As 2025 approaches, the IRS has announced its annual inflation adjustments, which will impact tax returns filed in 2026. These changes are outlined in Revenue Procedure 2024-40 and touch on a variety of tax provisions that will affect individuals and families across the U.S. Here’s a breakdown of the most notable updates.

 

1. Standard Deductions Increase

For tax year 2025, the standard deduction amounts have been adjusted for inflation:

  • Single taxpayers and married individuals filing separately: $15,000 (up by $400 from 2024).
  • Married couples filing jointly: $30,000 (up by $800 from 2024).
  • Heads of households: $22,500 (up by $600 from 2024).
  •  

2. Updated Marginal Tax Rates

The top marginal tax rate remains unchanged at 37% for single filers with incomes over $626,350 and married couples filing jointly with incomes above $751,600. The other rates are:

  • 35% for incomes over $250,525 ($501,050 for married couples filing jointly).
  • 32% for incomes over $197,300 ($394,600 for married couples filing jointly).
  • 24% for incomes over $103,350 ($206,700 for married couples filing jointly).
  • 22% for incomes over $48,475 ($96,950 for married couples filing jointly).
  • 12% for incomes over $11,925 ($23,850 for married couples filing jointly).
  • 10% for incomes under $11,925 ($23,850 for married couples filing jointly).

 

3. Alternative Minimum Tax (AMT) Adjustments

The AMT exemption amounts for 2025 have increased:

  • Unmarried individuals: $88,100, with phase-out beginning at $626,350.
  • Married couples filing jointly: $137,000, with phase-out beginning at $1,252,700.

 

4. Earned Income Tax Credit (EITC)

The maximum EITC for families with three or more children rises to $8,046, up from $7,830 in 2024. Adjustments also apply to other family sizes and income thresholds.

 

5. Increased Transportation Fringe Benefits

For 2025, the monthly limit for qualified transportation and parking benefits increases to $325, up from $315 in 2024.

 

6. Health Flexible Spending Adjustments

Employees can contribute up to $3,300 to health flexible spending arrangements (FSAs) in 2025 (an increase of $100 from 2024). The maximum carryover amount rises to $660.

 

7. Medical Savings Accounts (MSAs)

For participants with self-only coverage, the 2025 deductible must be between $2,850 and $4,300. For family coverage, the deductible range increases to $5,700 to $8,550, with the maximum out-of-pocket limit at $10,500.

 

8. Foreign Earned Income Exclusion

The foreign earned income exclusion increases to $130,000 for 2025, up from $126,500 in 2024, allowing expats to exclude more income from U.S. taxes.

 

9. Estate and Gift Tax Exclusions

  • The estate tax exclusion for 2025 increases to $13.99 million, up from $13.61 million.
  • The annual gift tax exclusion rises to $19,000, up from $18,000 in 2024.

 

10. Adoption Credit

The maximum adoption credit increases to $17,280 for 2025, up from $16,810 in 2024, providing more support to families adopting children with special needs.

 

Unchanged for 2025

Some items remain unchanged:

  • Personal exemptions are still at zero, as a result of the 2017 Tax Cuts and Jobs Act.
  • Itemized deductions remain without a limitation, continuing a trend from recent years.
  • Lifetime Learning Credit thresholds are unchanged, with phase-outs starting at $80,000 for singles and $160,000 for joint filers.

 

What These Changes Mean for You

With these adjustments, taxpayers should plan ahead for 2025. Whether you're maximizing deductions, adjusting contributions to FSAs, or planning gifts, understanding these new limits can help you optimize your tax situation.

Now is the time to start planning for next year’s tax season. Consider meeting with a tax advisor to ensure you’re making the most of these updates and preparing for any potential impacts.

Need Help Navigating These Changes?

Whether you're managing your personal taxes or looking for strategies to minimize your tax burden, reach out to a financial professional. We can help you plan effectively and avoid any surprises come tax season.

 

The full IRS release can be found here.

 

Disclosure: The information provided in this blog post is for educational and informational purposes only and should not be construed as financial advice. While we strive to present accurate and up-to-date information, the financial, tax, and legal landscape is subject to change, and individual circumstances vary. Readers are encouraged to consult with a qualified financial advisor or professional before making any financial decisions or implementing strategies discussed in this post. Our firm does not guarantee the accuracy, completeness, or suitability of the information provided, and we disclaim any liability for any direct or indirect damages arising from the use of this information. Past performance is not indicative of future results. Any investment involves risk, and individuals should carefully consider their financial situation and risk tolerance before making any investment decisions.