The IRS has released its annual updates for tax year 2025, which will affect returns filed in 2026. Here are the key changes you should know:
Standard Deduction Increases
- Married Couples Filing Jointly: The standard deduction rises to $30,000 (an $800 increase).
- Single Taxpayers & Married Filing Separately: The deduction goes up to $15,000 (a $400 increase).
- Heads of Household: The deduction increases to $22,500 (a $600 increase).
Updated Tax Brackets for 2025
The top tax rate is still 37%. Here’s a breakdown of the tax rates:
- 37% for incomes over $626,350 (single) / $751,600 (married filing jointly)
- 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 $11,925 or less (single) / $23,850 or less (married filing jointly)
Note: The current tax rates could change after 2025 if Congress doesn’t act, as some provisions in the Tax Cuts and Jobs Act are set to expire.
Other Key Updates for 2025
- Alternative Minimum Tax (AMT): Exemption amounts increase to $88,100 (single) / $137,000 (married filing jointly).
- Earned Income Tax Credit (EITC): Maximum credit for families with three or more children rises to $8,046.
- Transportation and Parking Benefits: Monthly limits increase to $325 (from $315).
- Health Flexible Spending Accounts: Contribution limit goes up to $3,300.
- Medical Savings Accounts: Minimum deductibles and out-of-pocket limits have slight increases.
- Foreign Earned Income Exclusion: Now $130,000, up from $126,500.
- Estate Tax Exclusion: Rises to $13.99 million, from $13.61 million.
- Annual Gift Exclusion: Increases to $19,000.
- Adoption Credit: Maximum credit for special needs adoptions goes up to $17,280.
These changes might affect your planning for the year ahead. Reach out if you need help navigating these updates!
