IRS Announces Inflation Adjustments for 2025 Tax Year

Standard deductions

The standard deduction for tax year 2025 will be $15,000 for single filers and married individuals filing separately, $30,000 for married couples filing jointly, and $22,500 for heads of households. These amounts represent increases of $400, $800, and $600, respectively, from the 2024 tax year.

Marginal rates

For the 2025 tax year, the top federal income tax rate of 37% applies to single filers earning over $626,350 and married couples filing jointly earning over $751,600.

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

In 2025, the personal exemption for single filers increases to $88,100, while married couples filing jointly can claim a $137,000 exemption. It’s important to note that these exemptions are subject to phase-out rules. For single filers, the exemption begins to decrease by 2% for every dollar of income exceeding $626,350. Similarly, for joint filers, the exemption starts to decline by 2% for income above $1,252,700.

Earned income tax credits

Qualifying taxpayers with three or more eligible children can claim a maximum Earned Income Tax Credit (EITC) of $8,046 for the 2025 tax year, an increase from the 2024 maximum of $7,830. The revenue procedure provides a comprehensive table outlining maximum EITC amounts for various categories, along with corresponding income thresholds and phase-out ranges.

Qualified transportation fringe benefit

For tax year 2025, the monthly limit for tax-free commuter benefits, including parking and transit passes, increases to $325, up from $315 in 2024.

Health flexible spending cafeteria plans

For tax year 2025, employees can contribute up to $3,300 to health FSAs through salary reductions, a $100 increase from 2024. Cafeteria plans with carryover provisions can now carry over up to $660 in unused funds, a $20 increase from 2024.

Medical savings accounts

For 2025, individuals with self-only coverage must have a deductible between $2,850 and $4,300, and a maximum out-of-pocket expense of $5,700. For family coverage, the deductible range is $5,700 to $8,550, and the maximum out-of-pocket expense is $10,500. These limits represent increases from the previous year.

Foreign earned income exclusion

For the 2025 tax year, the foreign earned income exclusion rises to $130,000, up from $126,500 in 2024.

Estate tax credits

Estates of individuals who die in 2025 will benefit from a higher estate tax exemption of $13,990,000, compared to the $13,610,000 exemption for 2024.

Annual exclusion for gifts

Starting in 2025, you can gift up to $19,000 tax-free, an increase from the $18,000 limit in 2024.

Adoption credits

The maximum federal tax credit for adopting a child with special needs has risen to $17,280 for the 2025 tax year, up from $16,810 in 2024. This credit covers qualified adoption expenses.

Unchanged for tax year 2025

By statute, certain items that were indexed for inflation in the past are currently not adjusted.

Personal exemptions

Personal exemptions will remain at $0 for tax year 2025, continuing the provision established by the Tax Cuts and Jobs Act of 2017.

Itemized deductions

For tax years 2018 through 2025, there are no limitations on itemized deductions. This means taxpayers can fully deduct eligible expenses such as mortgage interest, charitable contributions, and medical costs.

Lifetime learning credits

The Lifetime Learning Credit, which helps offset education costs, is reduced for taxpayers with higher incomes. The income threshold used to determine this reduction has not been adjusted for inflation since 2020. For tax years starting after 2020, the credit begins to phase out for single filers with modified adjusted gross income (MAGI) exceeding $80,000 and for joint filers with MAGI over $160,000.