The Internal Revenue Service (IRS) has released its annual inflation adjustments for tax year 2025, detailing changes that will affect taxpayers when they file their returns in 2026. These adjustments are aimed at ensuring that tax provisions keep pace with inflation and provide fair thresholds for deductions, credits, and exclusions. The updates impact over 60 tax provisions, with notable changes that taxpayers should be aware of for their future financial planning.
One of the key adjustments pertains to the standard deduction. For single filers and married individuals filing separately, the standard deduction for 2025 increases to $15,000, a $400 increase from 2024. Married couples filing jointly will see their standard deduction rise to $30,000, up by $800 from the previous year. Heads of household will benefit from a standard deduction of $22,500, reflecting a $600 increase.
Marginal tax rates remain largely the same, but the income thresholds have been adjusted for inflation. The top tax rate of 37% will apply to individual incomes exceeding $626,350, or $751,600 for married couples filing jointly. Other rates include 35% for incomes over $250,525, 32% for incomes over $197,300, 24% for incomes over $103,350, 22% for incomes over $48,475, and 12% for incomes over $11,925. Incomes at or below $11,925 (or $23,850 for married couples) will remain in the 10% bracket.
- 37% for incomes over $626,350 ($751,600 for married couples filing jointly).
- 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 $11,925 or less ($23,850 or less for married couples filing jointly).
The Alternative Minimum Tax (AMT) exemption amounts have also been increased. For unmarried individuals, the exemption rises to $88,100, with phase-outs beginning at $626,350. For married couples filing jointly, the exemption increases to $137,000, with phase-outs beginning at $1,252,700. These changes are designed to prevent middle-income taxpayers from being unfairly caught by the AMT.
The Earned Income Tax Credit (EITC) for taxpayers with three or more qualifying children increases to $8,046 for 2025, up from $7,830 in 2024. This increase provides additional support for low- and moderate-income families.
Qualified transportation benefits see an increase as well. The monthly limit for qualified transportation fringe benefits, including parking, rises to $325, up from $315 in 2024. Health flexible spending arrangements (FSAs) will allow a maximum employee contribution of $3,300, up from $3,200, with a carryover limit of $660, an increase from $640.
Medical savings account limits for 2025 reflect slight increases. For self-only coverage, the minimum annual deductible is $2,850, and the maximum is $4,300. The out-of-pocket expense limit rises to $5,700. For family coverage, the minimum deductible is $5,700, with a maximum deductible of $8,550. The out-of-pocket limit for families increases to $10,500.
Taxpayers living abroad will see the foreign earned income exclusion increase to $130,000, up from $126,500. Meanwhile, the estate tax exclusion amount rises to $13,990,000, compared to $13,610,000 in 2024. Additionally, the annual gift exclusion amount increases to $19,000 for 2025, up from $18,000.
The adoption credit sees a boost as well, with the maximum credit for adopting a child with special needs rising to $17,280, up from $16,810.
Notably, certain items remain unchanged for 2025 due to legislative constraints. The personal exemption remains at $0, consistent with the Tax Cuts and Jobs Act of 2017. Similarly, the phase-out threshold for the Lifetime Learning Credit remains static at $80,000 for single filers and $160,000 for joint filers.
These adjustments ensure taxpayers are not unfairly impacted by inflation and provide a clearer roadmap for financial planning in the coming years.
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