IRS Releases Tax Inflation Adjustments for Tax Year 2025

• Standard Deductions

  • Single taxpayers and married individuals filing separately: $15,000 (an increase of $400 from 2024).
  • Married couples filing jointly: $30,000 (an increase of $800).
  • Heads of households: $22,500 (an increase of $600).
    
    

• Marginal Tax Rates

  • The top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly). Other rates are:
    • 35% for incomes over $250,525 ($501,050 for married couples).
    • 32% for incomes over $197,300 ($394,600 for married couples).
    • 24% for incomes over $103,350 ($206,700 for married couples).
    • 22% for incomes over $48,475 ($96,950 for married couples).
    • 12% for incomes over $11,925 ($23,850 for married couples).
    • 10% for incomes up to $11,925 ($23,850 for married couples).
      
      

• Alternative Minimum Tax (AMT) Exemption

  • Unmarried individuals: $88,100 (phase-out begins at $626,350).
  • Married couples filing jointly: $137,000 (phase-out begins at $1,252,700).
  • Married individuals filing separately: $68,650.
    
    

• Earned Income Tax Credit (EITC)

  • The maximum EITC for taxpayers with three or more children rises to $8,046 (up from $7,830 in 2024). A table in the revenue procedure provides details for other categories.
    
    

    Alternative Minimum Tax Exemption

• Qualified Transportation Fringe Benefit

  • For tax year 2025, the monthly limitation for both the qualified transportation fringe benefit and qualified parking increases to $325 (up from $315 in 2024).
    

• Health Flexible Spending Cafeteria Plans

  • Employee salary reductions for contributions to health FSAs increase to $3,300 (up from $3,200).
  • For cafeteria plans that allow carryovers, the maximum carryover amount rises to $660 (up from $640).
    
    

• Medical Savings Accounts

  • Self-only coverage: The annual deductible must be between $2,850 and $4,300. The out-of-pocket expense limit increases to $5,700.
    • The maximum out-of-pocket expense amount rises to $5,700, increasing from $5,550 in tax year 2024.
  • Family coverage: The annual deductible ranges from $5,700 to $8,550, with an out-of-pocket expense limit of $10,500.
    • 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 exclusion rises to $130,000 (up from $126,500 in 2024)
    

• Estate Tax Credits

  • The basic exclusion amount for estates of decedents who pass away in 2025 increases to $13,990,000 (up from $13,610,000 in 2024)
    

• Annual Gift Exclusion

  • The annual exclusion for gifts increases to $19,000 (up from $18,000 in 2024)
    

• Adoption Credits

  • The maximum adoption credit for a child with special needs increases to $17,280 (up from $16,810 in 2024).
    
    

Unchanged for Tax Year 2025

Certain items that were indexed for inflation in the past are currently not adjusted by statute.

• Personal Exemptions

  • Personal exemptions remain at $0, unchanged since the Tax Cuts and Jobs Act of 2017.

• Itemized Deductions

  • Itemized deductions are not limited, continuing the trend since 2018, as per the Tax Cuts and Jobs Act.
    
    
• Lifetime Learning Credits
  • The income thresholds for the Lifetime Learning Credit remain the same: phase-out begins at $80,000 for individuals and $160,000 for joint filers, with no adjustments for inflation after 2020.