2025 IRS Tax Changes: New Tax Brackets, Higher Deductions and More
Ryan Millan, CPA
Summary
On a yearly basis, the Internal Revenue Service (IRS) adjusts more than 60 tax provisions for inflation to prevent what is called “bracket creep.” Bracket creep occurs when inflation, rather than real increases in income, pushes people into higher income tax brackets or reduces the value they receive from credits and deductions.
The IRS previously used the Consumer Price Index (CPI) as a measure of inflation prior to 2018. However, with the Tax Cuts and Jobs Act of 2017 (TCJA), the IRS now uses the Chained Consumer Price Index (C-CPI) to adjust income thresholds, deduction amounts, and credit values accordingly.
The new inflation adjustments are for tax year 2025, for which taxpayers will file tax returns in early 2026. On average, tax parameters that are adjusted for inflation will increase by about 2.8 percent.
Here is a look at several key changes:
2025 Standard Deduction for Single Taxpayers and Married Individuals Filing Separately
The standard deduction will rise to $15,000, up $400 from the 2024 rate of $14,600.
2025 Standard Deduction for Couples Filing Jointly
The standard deduction will be $30,000, an increase of $800 from the 2024 amount of $29,200.
2025 Standard Deduction for Heads of Households
The standard deduction rises to $22,500, a $600 increase from the 2024 amount of $21,900.
2025 Tax Brackets + Income Thresholds (Marginal Rates)
For tax year 2025, the top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly).
2025 Tax Brackets and Federal Income Tax Rates | Millan + Co., CPAs
| Tax Rate | For Single Filers | For Married Individuals Filing Joint Returns | For Heads of Households |
|---|---|---|---|
| 10% | $0 to $11,925 | $0 to $23,850 | $0 to $17,000 |
| 12% | $11,925 to $48,475 | $23,850 to $96,950 | $17,000 to $64,850 |
| 22% | $48,475 to $103,350 | $96,950 to $206,700 | $64,850 to $103,350 |
| 24% | $103,350 to $197,300 | $206,700 to $394,600 | $103,350 to $197,300 |
| 32% | $197,300 to $250,525 | $394,600 to $501,050 | $197,300 to $250,500 |
| 35% | $250,525 to $626,350 | $501,050 to $751,600 | $250,500 to $626,350 |
| 37% | $626,350 or more | $751,600 or more | $626,350 or more |
Alternative Minimum Tax Exemption Amounts
For tax year 2025, the exemption amount for unmarried individuals increases to $88,100 ($68,650 for married individuals filing separately) and begins to phase out at $626,350. For married couples filing jointly, the exemption amount increases to $137,000 and begins to phase out at $1,252,700.
Earned Income Tax Credits
For qualifying taxpayers who have three or more qualifying children, the tax year 2025 maximum Earned Income Tax Credit amount is $8,046, an increase from $7,830 for tax year 2024. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
Qualified Transportation Fringe Benefit
For tax year 2025, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking rises to $325, increasing from $315 in tax year 2024.
Medical Savings Accounts
For tax year 2025, participants who have self-only coverage the plan must have an annual deductible that is not less than $2,850 (a $50 increase from the previous tax year), but not more than $4,300 (an increase of $150 from the previous tax year).
The maximum out-of-pocket expense amount rises to $5,700, increasing from $5,550 in tax year 2024.
For family coverage in tax year 2025, the annual deductible is not less than $5,700, increasing from $5,550 in tax year 2024; however, the deductible cannot be more than $8,550, an increase of $200 versus the limit for tax year 2024. For family coverage, the out-of-pocket expense limit is $10,500 for tax year 2025, rising from $10,200 in tax year 2024.
Unchanged Tax Parameters for 2025
- By statute, certain items that were indexed for inflation in the past are currently not adjusted.
- 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).
- The $2,000 child tax-credit maximum and the $3,000 limit on capital losses that can be deducted from ordinary income aren't indexed for inflation in the 2025 tax year.
2025 Foreign Earned Income Exclusion
For tax year 2025, the foreign earned income exclusion increases to $130,000, a $3,500 increase from $126,500 in tax year 2024.
2025 Estate Tax Credits
Estates of decedents who die during 2025 have a basic exclusion amount of $13,990,000, increased $38,000 from $13,610,000 for estates of decedents who died in 2024.
2025 Adoption Credits
For tax year 2025, the maximum credit allowed for an adoption of a child with special needs is the amount of qualified adoption expenses up to $17,280, increased $470 from the 2024 tax year amount of $16,810.
Millan + Co. CPAs | Tax Planning Consultants
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