IRS Releases 2025 Tax Inflation Adjustments
The IRS announced tax adjustments affecting its 2025 standard deductions, tax rates, credits, and more. These changes, detailed in Revenue Procedure 2024-40, touch on more than 60 provisions aimed at helping taxpayers prepare for the 2026 tax season.
Several adjustments are broadly relevant:
- Standard Deduction: Single taxpayers and married individuals filing separately may claim a standard deduction of $15,000, up $400 from 2024. For married couples filing joint, the deduction rises to $30,000 (an $800 increase). Heads of households may deduct $22,500, marking a $600 increase from 2024.
- Marginal Tax Rates: Income thresholds for tax brackets will also shift in 2025, with the top rate of 37 percent applied to single incomes above $626,350 and joint incomes above $751,600. Other rates range from 10 percent for incomes up to $11,925 (single filers) or $23,850 (joint filers) to 35 percent for incomes over $250,525 (single) or $501,050 (joint).
- Alternative Minimum Tax (AMT): The AMT exemption amount for single filers increases to $88,100 and $137,000 for married couples filing jointly, with phase-out thresholds adjusted accordingly.
- Earned Income Tax Credit (EITC): The EITC for qualifying taxpayers with three or more dependents will increase to $8,046, reflecting inflation adjustments.
- Employee Benefits: Monthly limits for qualified transportation benefits and parking allowances increase to $325. Health flexible spending accounts can carry over up to $660 into the following year, and contributions are capped at $3,300.
Other areas also see adjustments. For Medical Savings Accounts, deductible limits increase slightly. In addition, the Foreign Earned Income Exclusion reaches $130,000, up from $126,500 in 2024. The estate tax exclusion grows to $13,990,000, and the annual gift tax exclusion increases to $19,000.
Some tax items remain unchanged, including the personal exemption (still at $0) and certain itemized deduction limits, which have been unaffected since the Tax Cuts and Jobs Act, signed into law in 2018.
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