IRS Announces 2025 Tax Inflation Adjustments
The Internal Revenue Service (IRS) has issued its annual inflation adjustments for tax year 2025. These changes will apply to income tax returns that will be filed in the 2026 tax season. Revenue Procedure 2024-40 includes detailed information on over 60 tax provisions that will affect taxpayers when they file their returns in 2026. The following tax items are of the greatest interest to taxpayers for the 2025 tax year.
2025 Income Rate Brackets
| Tax Rate | For Single Taxpayers | For Married Individuals Filing Jointly |
|---|---|---|
| 37% | Greater than $626,350 | Greater than $751,600 |
| 35% | $250,525 to $626,350 | $501,050 to $751,600 |
| 32% | $197,300 to $250,525 | $394,600 to $501,050 |
| 24% | $103,350 to $197,300 | $206,700 to $394,600 |
| 22% | $48,475 to $103,350 | $96,950 to $206,700 |
| 12% | $11,925 to $48,475 | $23,850 to $96,950 |
| 10% | Less than $11,925 | Less than $23,850 |
Standard Deduction
| Filing Status | Standard Deduction |
|---|---|
| Married Individuals Filing Jointly | $30,000 |
| Head of Household | $22,500 |
| Married Filing Separately | $15,000 |
| Single Taxpayers | $15,000 |
Alternative Minimum Tax (AMT) Exemptions
| Filing Status | Exemption Amount | Threshold Amount |
|---|---|---|
| Married Filing Jointly | $137,000 | $1,252,700 |
| Single Taxpayers | $88,100 | $626,350 |
| Married Filing Separately | $68,650 | $626,350 |
Earned Income Tax Credit (EITC)
| Single or Head of Household | Married Filing Jointly | |||||
|---|---|---|---|---|---|---|
| Number of Children | Max Credit | Income at Max Credit | Phaseout Begins | Phaseout Ends | Phaseout Begins | Phaseout Ends |
| None | $649 | $8,490 | $10,620 | $19,104 | $17,730 | $26,214 |
| One | $4,328 | $12,730 | $23,350 | $50,434 | $30,470 | $57,554 |
| Two | $7,152 | $17,880 | $23,350 | $57,310 | $30,470 | $64,430 |
| Three or More | $8,046 | $17,880 | $23,350 | $61,555 | $30,470 | $68,675 |
Other Notable Changes for Tax Year 2025
Qualified Transportation Fringe Benefit: The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking rises to $325, which is a $10 increase from 2024.
Health Flexible Spending Cafeteria Plans: The dollar limitation on voluntary employee salary reductions for contributions to health flexible spending arrangements has increased to $3,300. The maximum carryover is $660 if the cafeteria plan permits carryover of unused amounts.
Medical Savings Accounts: Participants who have self-only coverage for tax year 2025, must have an annual deductible that is not less than $2,850. The maximum out-of-pocket expense amount rises to $5,700. For family coverage, the annual deductible is not less than $5,550; however, the deductible cannot be more than $8,550. The out-of-pocket expense limit is $10,500 for family coverage.
Foreign Earned Income Exclusion: The foreign earned income exclusion increases to $130,000 for tax year 2025.
Estate Tax Credits: The basic exclusion amount for decedents who die in 2025 is $13,990,000.
Gift Exclusion: The annual exclusion for gifts for 2025 increases to $19,000 which is a $1,000 increase from 2024.
Adoption Credits: For taxable years beginning in 2025, the maximum credit allowed for adopting a child with special needs is the total qualified adoption expenses, up to $17,280.
Items that Remain Unchanged for 2025
The following items were previously adjusted for inflation but remain unchanged for tax year 2025.
Personal Exemptions: The personal exemption for tax year 2025 remains at 0, as it has for years 2024 and 2023.
Itemized Deductions: For 2025, there is no limitation on itemized deductions as that limitation was eliminated by Tax Cuts and Jobs Act of 2017.
Lifetime Learning Credit: The Lifetime Learning Credit provided in Sec. 25A(d)(1) of the Internal Revenue Codie is not adjusted for inflation for taxable years beginning after December 31, 2020. The credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).
If you have any questions on the IRS tax inflation adjustments for 2025, please contact your Brown Plus advisor.