By Julie Emanuele, CPA, Tax Senior Manager
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 Status | Standard Deduction | Increase 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 Rates | Individual Income | Married Couples Income |
---|---|---|
37% | Over $626,350 | Over $751,600 |
35% | Over $250,525 | Over $501,050 |
32% | Over $197,300 | Over $394,600 |
24% | Over $103,350 | Over $206,700 |
22% | Over $48,475 | Over $96,950 |
12% | Over $11,925 | Over $23,850 |
10% | $11,925 or less | $23,850 or less |
2025 Capital Gain Tax Brackets
Tax Rate | Individual Income | Married Couples Income |
---|---|---|
20% | Over $533,400 | Over $600,051 |
15% | Over $48, 351 | Over $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 Earnings | 2024 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 Status | Exemption Amount | Phase 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.
Year | Employee Salary Reductions Limit | Cafeteria Plans that allow Carryover |
---|---|---|
Carryover Maximum | ||
2025 | $3,300 | $660 |
2024 | $3,200 | $640 |
2025 Medical Savings Accounts
Coverage Type | Tax Year | Minimum Deductible | Maximum Deductible | Max Out-of-Pocket Expense |
---|---|---|---|---|
Self-only | 2025 | $2,850 | $4,300 | $5,700 |
Self-only | 2024 | $2,800 | $4,150 | $5,550 |
Family | 2025 | $5,700 | $8,550 | $10,500 |
Family | 2024 | $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 Year | Foreign 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 Year | Basic Exclusion Amount |
---|---|
2025 | $13,990,000 |
2024 | $13,610,000 |
2025 Annual Exclusion for Gifts Increases
Tax Year | Annual 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 Year | Maximum Credit | Qualified Adoption Expenses | Special Needs Adoption |
---|---|---|---|
2025 | $17,280 | Amount of qualified adoption expenses | Yes |
2024 | $16,810 | Amount of qualified adoption expenses | Yes |
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
About the Author
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.