Tax Planning Insights: 2025 Individual Tax Inflation Adjustments

By Julie Emanuele, CPA, Tax Senior Manager

Tax Planning Insights: 2025 Individual Tax Inflation Adjustments

Overview of IRS tax changes impacting families, executives and entrepreneurs

On October 22, 2024, the Internal Revenue Service (IRS) announced the annual inflation adjustments for tax year 2025. Over 60 tax provisions were adjusted or changed and will impact taxpayers when they file their returns in 2026.

With inflation cooling, the 2025 tax year inflation adjustments are noticeably smaller (2.8%) compared with the bracket adjustments of 7% in 2023 and 5.4% in 2024. As you implement 2024 year-end tax planning strategies, be sure to take these 2025 adjustments into account.

Key updates for the 2025 tax year

2025 Standard Deductions

Filing StatusStandard DeductionIncrease from Previous Year
Single$15,000$400
Married Filing Separately$15,000$400
Married Filing Jointly$30,000$800
Head of Household$22,500$600

2025 Tax Brackets

Tax RatesIndividual IncomeMarried Couples Income
37%Over $626,350Over $751,600
35%Over $250,525Over $501,050
32%Over $197,300Over $394,600
24%Over $103,350Over $206,700
22%Over $48,475Over $96,950
12%Over $11,925Over $23,850
10%$11,925 or less$23,850 or less

2025 Capital Gain Tax Brackets

Tax RateIndividual IncomeMarried Couples Income
20%Over $533,400Over $600,051
15%Over $48, 351Over $96,701
0%$48,351 or less$96,701 or less

2025 Social Security Wage Base and Benefit Changes

Every year, the Social Security administration calculates taxable wages based on increases in the national average wage index.

2025 Maximum Earnings2024 Maximum Earnings
Social Security$176,100$168,600
*6.2% Social Security tax on the first $176,100 of employee wages (maximum tax is $10,918.20)*Up from $10,453.20 in 2024

Updates for those who continue working while collecting Social Security benefits:

  • Social security can be collected starting at age 62. Beneficiaries under the full retirement age who are still working receive a reduced monthly benefit if they earn more than the annually adjusted threshold. (Full retirement age for beneficiaries born in 1957 is 66 years and 6 months and for beneficiaries born in 1958, the age is 66 years and 8 months.)
  • For 2025, $1 in benefits will be withheld for every $2 in earnings above $23,400 (increase from $22,320 in 2024). Those who will reach retirement age during 2025 will have $1 in benefits withheld for every $3 in earnings exceeding $62,160 (up from $59,520) until the month they reach full retirement age. Beyond that month, there is no limit.

Social Security changes for retirees:

  • Starting January 1, 2025, monthly Social Security and Supplemental Security Income benefits for retirees will increase by 2.5% (3.2% in 2024).

2025 Alternative Minimum Tax Exemption Amounts

Filing StatusExemption AmountPhase Out Begins
Unmarried Individuals$88,100$626,350
Married Individuals Filing Separately$68,650$626,350
Married Couples Filing Jointly$137,000$1,252,700

2025 Health Flexible Spending Cafeteria Plans 

The dollar limitation for employee salary reductions for contributions to health flexible spending arrangements.

YearEmployee Salary Reductions LimitCafeteria Plans that allow Carryover
Carryover Maximum
2025$3,300$660
2024$3,200$640

2025 Medical Savings Accounts

Coverage TypeTax YearMinimum DeductibleMaximum DeductibleMax Out-of-Pocket Expense
Self-only2025$2,850$4,300$5,700
Self-only2024$2,800$4,150$5,550
Family2025$5,700$8,550$10,500
Family2024$5,550$8,350$10,200

2025 Foreign Earned Income Exclusion

The foreign earned income exclusion is intended to prevent double taxation by excluding income taxed in another country from U.S. taxation. You must meet specific qualifications to claim the foreign earned income exclusion.

Tax YearForeign Earned Income Exclusion
2025$130,000
2024$126,500

2025 Estate Tax Credits

The passage of the Tax Cuts and Jobs Act (TCJA) in 2017 almost doubled the estate tax exemption to $11.18 million in 2018. It has been indexed for inflation each year; however, the estate tax exemption is set to drop back to $5 million on January 1, 2026.

Tax YearBasic Exclusion Amount
2025$13,990,000
2024$13,610,000

2025 Annual Exclusion for Gifts Increases

Tax YearAnnual Exclusion for Gifts
2025$19,000
2024$18,000

Estate Planning Consideration:

The lifetime gift and estate tax exemption allows for tax-free transfer of wealth from one generation to the next. With the passage of the Tax Cuts and Jobs Act (TCJA), the gift and estate tax exemption increased significantly. The $13.61 million lifetime gift exception is temporary and only applies to tax years up to 2025. Unless Congress makes these changes permanent, after 2025 the exemption will revert to the $5.49 million exemption (adjusted for inflation). Now is a good time to talk with your tax and other estate planning advisors about estate planning opportunities.


2025 Adoption Credits

This credit can be applied to international, domestic private, and public foster care adoption.

Tax YearMaximum CreditQualified Adoption ExpensesSpecial Needs Adoption
2025$17,280Amount of qualified adoption expensesYes
2024$16,810Amount of qualified adoption expensesYes

Tax provisions that remain unchanged for 2025

  • Personal exemptions for tax year 2025 remain at 0, as in tax year 2024. The elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act of 2017.
  • Itemized deductions. There is no limitation on itemized deductions for tax year 2025, as in tax year 2024 and preceding, to tax year 2018. The limitation on itemized deductions was eliminated by the Tax Cuts and Jobs Act of 2017.
  • Lifetime learning credits. The modified adjusted gross income amount used by taxpayers to determine the reduction in the Lifetime Learning Credit provided in Sec. 25A(d)(1) of the Internal Revenue Code is not adjusted for inflation for taxable years beginning after Dec. 31, 2020. The Lifetime Learning Credit is phased out for taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for joint returns).

Each taxpayer’s situation is unique, and you should speak with your tax advisor before making any changes to your tax or estate planning approach. If you have any questions, please contact your Keiter Opportunity Advisor.

Source:
IRS releases tax inflation adjustments for tax year 2025

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About the Author


Julie Emanuele

Julie Emanuele, CPA, Tax Senior Manager

Julie’s areas of expertise include tax consulting, compliance, and research for high-net-worth individuals, partnerships, and corporations. is a member of Keiter’s Family, Executive & Entrepreneur Tax Advisory Services team. Access all of Julie’s articles on our blog.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.

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