The IRS has just rolled out its annual inflation adjustments for tax year 2025, detailed in Revenue Procedure 2024-40. With over 60 tax provisions updated, these changes will directly impact the returns you'll file in 2026. Let’s break down some highlights so you’re not caught off guard.
What’s New for 2025?
These updates cover changes to deductions, tax rates, credits, retirement savings plans, and more:
1. Standard Deductions
Single filers/married filing separately: $15,000 (up $400 from 2024).
Married filing jointly: $30,000 (up $800).
Heads of household: $22,500 (up $600).
2. Marginal Tax Brackets
Top rate of 37%: Income over $626,350 (or $751,600 for married joint filers).
35% bracket: Over $250,525 ($501,050 for joint filers).
32% bracket: Over $197,300 ($394,600 for joint filers).
24% bracket: Over $103,350 ($206,700 for joint filers).
22% bracket: Over $48,475 ($96,950 for joint filers).
12% bracket: Over $11,925 ($23,850 for joint filers).
10% bracket: $11,925 or less ($23,850 or less for joint filers).
3. Alternative Minimum Tax (AMT)
Unmarried: Exemption at $88,100 (phases out at $626,350).
Married filing jointly: $137,000 (phases out at $1,252,700).
Married filing separately: $68,650.
4. Earned Income Tax Credit (EITC)
Max EITC for families with three or more children: $8,046 (up from $7,830).
5. Health Flexible Spending Accounts (FSAs)
Employee contribution limit: $3,300 (up from $3,200).
Carryover max: $660 (up from $640).
6. Health Savings Accounts (HSAs)
Individual coverage: $4,300 (up from $4,150).
Family coverage: $8,550 (up from $8,300).
Catch-up contributions: Individuals aged 55 and older can contribute an additional $1,000.
7. 401(k) Contribution Limits
Employee contribution: $23,500 (up from $23,000 in 2024).
Catch-up contributions: For those aged 50-59 and 64+, an additional $7,500. For ages 60-63, a new "super catch-up" allows an extra $11,250, potentially bringing total contributions to $34,750. Note: Catch-up contributions for high earners ($145,000+ in prior year) must be Roth contributions.
8. SIMPLE IRA Contribution Limits
Standard contribution: $16,500 (up from $16,000).
Catch-up contributions: For those aged 50-59 and 64+, an additional $3,500. For ages 60-63, eligible for a higher catch-up limit of $5,250.
9. Estate Tax Exemption
Basic exclusion: $13,990,000 (up from $13,610,000).
10. Gift Tax Exclusion
Annual amount: $19,000 (up from $18,000).
For a full breakdown of changes, check out Revenue Procedure 2024-40.
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