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The Internal Revenue Service (IRS) announced today the annual inflation adjustments for tax year 2025. The adjustments, detailed in Revenue Procedure 2024-40, will affect over 60 tax provisions and apply to tax returns filed in 2026. Below are the key changes for tax year 2025.
Standard Deduction Increases
- Single taxpayers and married individuals filing separately: The standard deduction rises to $15,000, an increase of $400 from 2024.
- Married couples filing jointly: The deduction increases to $30,000, up $800 from the previous year.
- Heads of households: The deduction will be $22,500, an increase of $600 from 2024.
Marginal Tax Rates
- The top tax rate remains 37% for single taxpayers with incomes over $626,350 and for married couples filing jointly with incomes over $751,600. Other rates are as follows:
- 35%: for incomes over $250,525 (single); $501,050 (married filing jointly)
- 32%: for incomes over $197,300 (single); $394,600 (married filing jointly)
- 24%: for incomes over $103,350 (single); $206,700 (married filing jointly)
- 22%: for incomes over $48,475 (single); $96,950 (married filing jointly)
- 12%: for incomes over $11,925 (single); $23,850 (married filing jointly)
- 10%: for incomes below $11,925 (single); $23,850 (married filing jointly)
Alternative Minimum Tax (AMT) Exemption
- The AMT exemption for unmarried individuals rises to $88,100, and for married individuals filing separately, it increases to $68,650. The phaseout begins at $626,350.
- For married couples filing jointly, the exemption increases to $137,000, with a phaseout starting at $1,252,700.
Earned Income Tax Credit (EITC)
- The maximum EITC for taxpayers with three or more qualifying children rises to $8,046, up from $7,830 in 2024. The revenue procedure includes detailed EITC amounts for other categories and income thresholds.
Other Adjustments
- Qualified transportation fringe benefit: Monthly limitations for transportation and parking rise to $325, up from $315 in 2024.
- Health flexible spending arrangements: The employee salary reduction contribution limit increases to $3,300, with a maximum carryover amount of $660.
- Medical savings accounts: The minimum annual deductible for self-only coverage rises to $2,850, with a maximum out-of-pocket expense of $5,700. For family coverage, the deductible rises to $5,700, with a maximum out-of-pocket expense of $10,500.
- Foreign earned income exclusion: Increases to $130,000 from $126,500 in 2024.
- Estate tax exclusion: Increases to $13,990,000 from $13,610,000 in 2024.
- Annual gift exclusion: Rises to $19,000, up from $18,000 in 2024.
- Adoption credit: The maximum credit for adopting a child with special needs increases to $17,280, up from $16,810 in 2024.
Unchanged Items
- Personal exemptions: Remain at 0 for tax year 2025, continuing the provision from the Tax Cuts and Jobs Act of 2017.
- Itemized deductions: There is no limitation on itemized deductions for tax year 2025.
- Lifetime learning credit: The phaseout threshold remains unchanged at $80,000 for single filers and $160,000 for joint filers.
