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On 10/22/2024, the Internal Revenue Service revealed the annual inflation adjustments for tax year 2025.
Key Changes
The adjustments for tax year 2025 detailed below generally apply to income tax returns to be submitted starting the tax season of 2026. The significant dollar amount changes for tax year 2025 that interest many taxpayers include:
Standard deductions. For tax year 2025, the standard deduction for single taxpayers and married individuals filing separately increases to $15,000, up by $400 from 2024. For married couples filing jointly, the standard deduction increases to $30,000, up by $800 from the previous tax year. For heads of households, the standard deduction will be $22,500 for tax year 2025, up by $600 from the amount for 2024.
Marginal rates. The top tax rate remains at 37% for individual single taxpayers with incomes exceeding $626,350 ($751,600 for married couples filing jointly) for tax year 2025. 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 $11,925 or less ($23,850 or less for married couples filing jointly).
Alternative minimum tax exemption amounts. For tax year 2025, the exemption amount for unmarried individuals rises to $88,100 ($68,650 for married individuals filing separately) and starts to phase out at $626,350. For married couples filing jointly, the exemption amount increases to $137,000 and starts to phase out at $1,252,700.
Earned income tax credits. The maximum Earned Income Tax Credit amount for tax year 2025 is $8,046 for qualifying taxpayers with three or more qualifying children, an increase from $7,830 in 2024. A table in the revenue procedure provides the maximum EITC amount for other categories, income thresholds, and phase-outs.
Qualified transportation fringe benefit. The monthly limitation for the qualified transportation fringe benefit and qualified parking rises to $325 for tax year 2025, up from $315 in 2024.
Health flexible spending cafeteria plans. For taxable years beginning in 2025, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements increases to $3,300, up from $3,200 in 2024. For cafeteria plans allowing the carryover of unused amounts, the maximum carryover amount increases to $660 from $640 in 2024.
Medical savings accounts. Participants with self-only coverage in tax year 2025 must have an annual deductible between $2,850 and $4,300, with the maximum out-of-pocket expense amount rising to $5,700 from $5,550 in 2024. For family coverage, the annual deductible ranges from $5,700 to $8,550, with an out-of-pocket expense limit of $10,500 for 2025, up from $10,200 in 2024.
Foreign earned income exclusion. The foreign earned income exclusion for tax year 2025 increases to $130,000 from $126,500 in 2024.
Estate tax credits. Estates of decedents who pass away in 2025 have a basic exclusion amount of $13,990,000, up from $13,610,000 for those who died in 2024.
Annual exclusion for gifts rises to $19,000 for the calendar year 2025, up from $18,000 in 2024.
Adoption credits. The maximum credit for the adoption of a child with special needs in tax year 2025 is the amount of qualified adoption expenses up to $17,280, increased from $16,810 in 2024.
No Changes
By law, certain items that were previously indexed for inflation remain unadjusted.
Personal exemptions for tax year 2025 stay at 0, as in 2024. The elimination of the personal exemption was part of the Tax Cuts and Jobs Act of 2017.
Itemized deductions. There is no restriction on itemized deductions for tax year 2025, as in 2024 and prior to 2018. The limitation on itemized deductions was removed by the Tax Cuts and Jobs Act of 2017.
Lifetime learning credits. The modified adjusted gross income amount used to determine the reduction in the Lifetime Learning Credit remains unaltered for taxable years starting after Dec. 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income exceeding $80,000 ($160,000 for joint returns).
We provide tax planning strategies for those trying to plan ahead of 2025.
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