The IRS has adjusted tax brackets to account for inflation
Jan 30, 2025
The 2025 tax season got underway this week as the Internal Revenue Service began accepting 2024 tax returns. Those who are planning their 2025 tax strategy might want to review tax changes in the new year, starting with tax brackets.
The marginal tax rates for 2025 remain largely consistent, with the top rate at 37% for single taxpayers earning over $626,350 and married couples filing jointly with incomes exceeding $751,600. Other rates include 35% for incomes above $250,525 for singles and $501,050 for joint filers, and 32% for incomes over $197,300 for singles and $394,600 for joint filers. Lower brackets are set at 24%, 22%, 12%, and 10%, with corresponding income thresholds adjusted for inflation.
Here’s how it breaks down:
- 37% taxable incomes greater than $626,350 ($751,600 for married couples filing jointly)
- 35% for incomes over $250,525 ($501,050 for married couples filing jointly)
- 32% for incomes over $197,300 ($394,600 for married couples filing jointly)
- 24% for incomes over $103,350 ($206,700 for married couples filing jointly)
- 22% for incomes over $48,475 ($96,950 for married couples filing jointly)
- 12% for incomes over $11,925 ($23,850 for married couples filing jointly)
- 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly)
Other changes
For 2025, the standard deduction sees a modest increase. Single taxpayers and married individuals filing separately will benefit from a $15,000 deduction, a $400 rise from 2024. Married couples filing jointly will see their standard deduction increase to $30,000, up by $800, while heads of households will have a deduction of $22,500, marking a $600 increase from the previous year.
The Alternative Minimum Tax (AMT) exemption amounts have also been revised. For unmarried individuals, the exemption increases to $88,100, with a phase-out beginning at $626,350. Married couples filing jointly will see an exemption of $137,000, phasing out at $1,252,700.
The Earned Income Tax Credit (EITC) for taxpayers with three or more qualifying children will rise to a maximum of $8,046, up from $7,830 in 2024. Additionally, the qualified transportation fringe benefit and parking limitations will increase to $325 per month, reflecting a $10 rise.
Health spending
Health flexible spending arrangements will see an increase in the contribution limit to $3,300, with the carryover amount rising to $660. Medical savings accounts for self-only coverage will have a deductible range of $2,850 to $4,300, while family coverage deductibles will range from $5,700 to $8,550.
The foreign earned income exclusion will increase to $130,000, and the estate tax credit exclusion amount will rise to $13,990,000. The annual gift exclusion will also see an increase to $19,000. Lastly, the adoption credit for a child with special needs will be up to $17,280.
These adjustments aim to account for inflation and provide taxpayers with updated thresholds and benefits, ensuring that the tax system remains equitable and responsive to economic changes.