On 10/22/24, the IRS released the annual inflation adjustments for tax year 2025 that will impact taxpayers when they file their 2025 returns in 2026. Following are the main items for tax year 2025:
Standard Deductions
- For single taxpayers and married individuals filing separately for tax year 2025, the standard deduction rises to $15,000 for 2025, an increase of $400 from 2024.
- For married couples filing jointly, the standard deduction rises to $30,000, an increase of $800 from tax year 2024.
- For heads of households, the standard deduction will be $22,500 for tax year 2024, an increase of $600 from the amount for tax year 2024.
Marginal Rates
- The top tax rate remains 37% for individual single taxpayers with incomes greater than $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).
Alternative Minimum Tax Exemption Amounts
- The exemption amount for unmarried individuals increases to $88,100 ($68,650 for married individuals filing separately) and begins to phase out at $626,350.
- For married couples filing jointly, the exemption amount increases to $137,000 and begins to phase out at $1,252,700.
Earned Income Tax Credit
For qualifying taxpayers who have three or more qualifying children, the tax year 2025 maximum Earned Income Tax Credit amount is $8,046, an increase from $7,830 for tax year 2024.
Qualified Transportation Fringe Benefit
The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking rises to $325, increasing from $315 in tax year 2024.
Health Flexible Spending Cafeteria Plans
For the taxable years beginning in 2025, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements rises to $3,300, increasing from $3,200 in tax year 2024. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount rises to $660, increasing from $640 in tax year 2024.
Medical Savings Accounts
- For tax year 2025, participants who have self-only coverage the plan must have an annual deductible that is not less than $2,850 (a $50 increase from the previous tax year), but not more than $4,300 (an increase of $150 from the previous tax year).
- The maximum out-of-pocket expense amount rises to $5,700, increasing from $5,550 in tax year 2024.
- For family coverage in tax year 2025, the annual deductible is not less than $5,700, increasing from $5,550 in tax year 2024; however, the deductible cannot be more than $8,550, an increase of $200 versus the limit for tax year 2024. For family coverage, the out-of-pocket expense limit is $10,500 for tax year 2025, rising from $10,200 in tax year 2024.
Foreign Earned Income Exclusion
The foreign earned income exclusion increases to $130,000, from $126,500 in tax year 2024.
Estate Tax Credits
Estates of decedents who die during 2025 have a basic exclusion amount of $13,990,000, increased from $13,610,000 for estates of decedents who died in 2024.
Annual Exclusion for Gifts
Increases to $19,000 for calendar year 2025, rising from $18,000 for calendar year 2024.
Adoption Credits
The maximum credit allowed for an adoption of a child with special needs is the amount of qualified adoption expenses up to $17,280, increased from $16,810 for tax year 2024.
Remember this
A good record-keeping system year-round can make filing taxes easier by knowing what to keep and how long to keep it. Moreover, good recordkeeping can also assist taxpayers if they receive a letter or notice from the IRS. The IRS continues to remind taxpayers to gather all necessary tax paperwork and records for accuracy to avoid missing a deduction or credit. Taxpayers should have all their important and necessary documents before preparing their return. This will help file a complete and accurate tax return. Errors and omissions slow down tax processing, including refund times.
Will the tax year 2025 changes have an impact on your tax situation?
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