On Tuesday, October 22nd the Internal Revenue Service (IRS) released the tax inflation adjustments for tax year 2025.
These adjustments will apply to those income tax returns filed in in the 2026 tax season. The following outlined items are changes considered to be of high interest to individual taxpayers:
Standard Deduction:
For 2025, the standard deduction for individuals or married individuals filling separately increased $400 to $15,00 for 2025. For married filing jointly couples, the standard deduction increased $800 to $30,000. For individuals claiming head of household filling status, the standard deduction will increase $600 to $22,500 for 2025.
Marginal Rate:
The top marginal tax rate will stay at 37% for individual taxpayers with income greater than $626,350 ($751,600 for MFJ couples) for 2025. Additional rates are as follows:
- 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 (AMT) exemption amounts:
The AMT exemption amount will increase to $88,100 for individuals with the phase out beginning $626,350. For married filling joint couples, the exemption amount will be at $137,000 for 2025 with the phase-out beginning at $1,252,700.
Earned Income Tax Credit:
For taxpayers who have three of more qualifying children, the maximum Earned Income Tax Credit increased from $7,830 in tax year 2024 to $8,046 in 2025.
Qualified Transportation Fringe Benefit:
The Qualified transportation fringe benefit and monthly limitation for qualified parking increased from $315 in 2024 to $325 in 2025.
Health Flexible Spending Cafeteria Plans:
For tax year 2025, the dollar limitation for employee salary reductions for health flexible spending agreements contributions increase from $3,200 in 2024 to $3,300 in 2025. For cafeteria plans that permit the carryover of unused amounts, the max carryover amount increases from $640 in 2024 to $660 for 2025.
Medical Savings Accounts:
Participant with self-only coverage plans must have an annual deductible that is not less than $2,850 but not more that $4,300. The max out-of-pocket expense increased from $5,500 to $5,700 for 2025
For family coverage the annual deductible in not less than $5,700 and not more than $8,550 for 2025, a $200 increase from 2024. The family out of pocket limit increase $300 for 2025 to $10,500.
Other Changes for 2025:
Additional changes for 2025 include an increase in the foreign earned income exclusion to $130,000 from $126,500. The Estate tax credits also saw an increase for 2025, increasing to $13,990,000 for estates who descendants died during 2025. Additionally, the annual exclusion for gifts increased to $19,000 in 2025 from $18,000 in 2024. The maximum credit for the adoption of a child with special needs is the amount of qualified adoption expenses that has increased to $17,280 for 2025.
Although there are a number of inflation adjusted limitations/ranges for 2025 there are some things that will remain unchanged. The personal exemption will remain at zero and as it was in 2024. The itemized deduction will also continue to have no limitations. Please reach out to your Wegner CPAs advisor if you have questions on how these annual changes will affect you.
