Tax Season 2025 Updates – Key Changes to Know Before Filing Your Return

The IRS has announced inflation adjustments for fiscal year 2025, detailed in Revenue Procedure 2024-40. These updates impact more than 60 tax provisions and will apply when taxpayers file their returns in 2026. Below are the most notable modifications for 2025, covering everything from standard deductions to adoption credits.

Standard Deductions

For the 2025 tax year, standard deductions have increased, giving taxpayers more opportunities to reduce their taxable income:

• Single taxpayers and married filing separately: $15,000 (up by $400 from 2024).
• Married filing jointly: $30,000 (up by $800 from 2024).

This adjustment benefits taxpayers by accounting for inflation and increasing the portion of income shielded from federal taxes.

Alternative Minimum Tax (AMT)

The AMT exemption thresholds have also risen:

• Single taxpayers: $88,100 (phase-out begins at $626,350).
• Married filing jointly: $137,000 (phase-out begins at $1,252,700).
• Married filing separately: $68,650.

The AMT changes ensure that fewer taxpayers with higher incomes are impacted by this parallel tax system.

Earned Income Tax Credit (EITC)

For qualified taxpayers with three or more qualifying children, the maximum EITC increases to $8,046, up from $7,830 in 2024. The income thresholds for phase-ins and phase-outs have also been adjusted, with details available in the IRS income procedure.

Fringe Benefits

• The monthly limit for both transportation fringe benefits and qualified parking increases to $325 (up from $315 in 2024).

Health FSAs

• Employee contributions to health FSAs can go up to $3,300 in 2025, an increase of $100 from 2024.

Medical Savings Accounts (MSAs)

For participants with individual plan coverage:

• Annual deductible must be $2,850 to $4,300 (up by $50 and $150, respectively, from 2024).
• Maximum out-of-pocket limit: $5,700 (up from $5,550 in 2024).

For family coverage:

• Deductible: $5,700 to $8,550 (up from $5,550 to $8,350).
• Out-of-pocket limit: $10,500 (up from $10,200 in 2024).

Foreign Earned Income Exclusion

For 2025, the foreign earned income exclusion rises to $130,000, up from $126,500 in 2024. This increase helps U.S. citizens working abroad shield a larger portion of their income from taxation.

Estate Tax and Gift Exclusions

• The basic exclusion for estates increases to $13,990,000 (up from $13,610,000 in 2024).

Gift Tax

• The annual gift exclusion rises to $19,000 per recipient, up from $18,000 in 2024.

Adoption Credit

The maximum credit for adopting a child with special needs or for qualified adoption expenses increases to $17,280, compared to $16,810 in 2024. This credit provides vital support for families growing through adoption.

Key Takeaways

These IRS adjustments reflect efforts to account for inflation and provide taxpayers with fair opportunities to reduce their tax burdens. From increased deductions and credits to adjustments for fringe benefits, these updates ensure that taxpayers are better equipped for the 2026 filing season.

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