Tax inflation adjustments for tax year 2025

The Internal Revenue Service announced today the annual inflation adjustments for tax year 2025.

Here’s a summary of the IRS’s inflation adjustments for tax year 2025:

  1. Standard Deductions:
    • Single/married filing separately: $15,000 (up by $400).
    • Married filing jointly: $30,000 (up by $800).
    • Head of household: $22,500 (up by $600).
  2. Marginal Tax Rates:
    • Top rate of 37% for incomes over $626,350 (single) and $751,600 (joint).
    • Other rates: 35%, 32%, 24%, 22%, 12%, and 10% for lower income thresholds.
  3. Alternative Minimum Tax (AMT):
    • Exemption for single filers: $88,100 (phasing out at $626,350).
    • Married filing jointly: $137,000 (phasing out at $1,252,700).
  4. Earned Income Tax Credit (EITC):
    • Maximum credit: $8,046 for taxpayers with three or more qualifying children (up from $7,830).
  5. Qualified Transportation and Health Fringe Benefits:
    • Monthly transportation and parking limits: $325 (up from $315).
    • Health flexible spending: $3,300 contribution limit and $660 carryover.
  6. Medical Savings Accounts:
    • Self-only deductible: $2,850 to $4,300.
    • Family deductible: $5,700 to $8,550 with a $10,500 out-of-pocket limit.
  7. Foreign Earned Income Exclusion:
    • Increased to $130,000 (up from $126,500).
  8. Estate and Gift Tax:
    • Estate exclusion: $13,990,000.
    • Annual gift exclusion: $19,000.
  9. Adoption Credit:
    • Maximum credit: $17,280 (up from $16,810).

Unchanged:

  • Personal exemptions remain at 0.
  • No limitation on itemized deductions.
  • Lifetime Learning Credit phase-out starts at $80,000 ($160,000 for joint returns).

Reference: https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025

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