The Internal Revenue Service (IRS) has released its annual inflation adjustments for the 2025 fiscal year, outlining important changes that will affect taxpayers filing their returns in 2026. These adjustments, detailed in Revenue Procedure 2024-40, apply to over 60 tax provisions and reflect cost-of-living increases. Below, we summarize the most significant updates for individual taxpayers.
Key Modifications
The standard deduction amounts have increased for tax year 2025, benefiting many taxpayers:
Filing Status | 2025 Standard Deduction | Increase from 2024 |
---|---|---|
Single or Married Filing Separately | $15,000 | +$400 |
Married Filing Jointly | $30,000 | +$800 |
Head of Household | $22,500 | +$600 |
Alternative Minimum Tax (AMT)
The AMT exemption amounts and phase-out thresholds have been adjusted:
Filing Status | 2025 Exemption | Phase-Out Begins |
---|---|---|
Single | $88,100 | $626,350 |
Married Filing Jointly | $137,000 | $1,252,700 |
Married Filing Separately | $68,650 | $626,350 |
Earned Income Tax Credit (EITC)
Taxpayers with three or more qualifying children can claim a maximum EITC of $8,046 in 2025, up from $7,830 in 2024. Additional thresholds for other family sizes are outlined in the IRS Revenue Procedure.
Qualified Transportation Fringe Benefits
For 2025, the monthly limit for both qualified transportation benefits and qualified parking increases to $325, up from $315 in 2024.
Health FSA
The maximum contribution limit for employee salary reductions to health FSAs rises to $3,300 in 2025, compared to $3,200 in 2024.
Medical Savings Accounts (MSA)
Adjustments for MSAs reflect changes in both individual and family plan coverage:
Coverage Type | Minimum Annual Deductible | Maximum Annual Deductible | Out-of-Pocket Limit |
---|---|---|---|
Individual Coverage | $2,850 | $4,300 | $5,700 |
Family Coverage | $5,700 | $8,550 | $10,500 |
Exclusion of Foreign Earned Income
The foreign earned income exclusion increases to $130,000 for fiscal year 2025, up from $126,500 in 2024.
Estate Tax
- Estate Tax Credit: The basic exclusion amount for estates of decedents who die in 2025 is $13,990,000, an increase from $13,610,000 in 2024.
- Annual Gift Exclusion: The annual gift exclusion rises to $19,000, up from $18,000 in 2024.
Adoption Tax Credits
For 2025, the maximum credit for the adoption of a child with special needs or qualified adoption expenses is $17,280, up from $16,810 in 2024.
Adjustments Matter
These updates reflect annual cost-of-living adjustments to align tax provisions with inflation. This ensures taxpayers are not unfairly burdened as living costs rise. The increases in deductions, credits, and thresholds provide greater financial flexibility, especially for families, individuals with dependents, and those navigating medical expenses.
Key Steps to Prepare
- Review the Adjustments: Familiarize yourself with the changes to determine how they may impact your 2025 tax return.
- Maximize Benefits: Take advantage of increased limits for deductions, credits, and exclusions, particularly if your circumstances align with specific provisions (e.g., adoption credits, EITC, or foreign earned income).
- Track Contributions: Monitor contributions to health FSAs and other accounts to avoid exceeding updated limits.
- Consult a Tax Professional: If youโre unsure how these adjustments affect you, seek advice from a tax advisor to optimize your filing strategy.
FAQs
What is the new standard deduction for 2025?
For single filers, it’s $15,000. For married couples filing jointly, it’s $30,000.
What is the maximum EITC for 2025?
The maximum EITC for taxpayers with three or more qualifying children is $8,046.
How much can I contribute to a health FSA in 2025?
The maximum contribution limit is $3,300, up from $3,200 in 2024.
What is the foreign earned income exclusion for 2025?
The exclusion increases to $130,000, up from $126,500 in 2024.
What is the annual gift tax exclusion for 2025?
The annual gift exclusion increases to $19,000, up from $18,000 in 2024.