The IRS has announced significant tax changes for 2024 and 2025, affecting millions of Americans and businesses.
At a Glance
- Standard deduction to increase for 2025: $15,000 for single filers, $30,000 for married couples filing jointly
- Top marginal tax rate of 37% will apply to higher income thresholds in 2025
- Maximum Earned Income Tax Credit to rise to $8,046 for those with three or more qualifying children
- Estate tax basic exclusion amount to increase to $13,990,000 in 2025
- Tax Cuts and Jobs Act provisions set to expire at the end of 2025, potentially impacting future tax policies
IRS Announces 2025 Tax Year Adjustments
The Internal Revenue Service has released its annual inflation adjustments for the 2025 tax year, impacting over 60 tax provisions. These changes will affect taxpayers when they file their returns in 2026, reflecting the government’s effort to account for inflation in the tax code.
“The Internal Revenue Service announced today the annual inflation adjustments for tax year 2025.” – Internal Revenue Service
Key adjustments include increases in standard deductions, tax bracket thresholds, and various credits and exemptions. For 2025, the standard deduction will rise to $15,000 for single taxpayers and $30,000 for married couples filing jointly. This increase aims to simplify tax filing for millions of Americans by reducing the need to itemize deductions.
Changes in Tax Brackets and Rates
The 2025 tax year will see adjustments to income tax brackets, affecting taxpayers across various income levels. The top marginal tax rate of 37% will apply to incomes over $626,350 for single filers and $751,600 for married couples filing jointly. These increases in bracket thresholds are designed to prevent “bracket creep,” where inflation pushes taxpayers into higher tax brackets without a real increase in purchasing power.
For those with lower incomes, the Earned Income Tax Credit (EITC) will see a boost. The maximum EITC for 2025 will increase to $8,046 for taxpayers with three or more qualifying children, providing additional support for working families.
Estate and Gift Tax Adjustments
High-net-worth individuals and their financial advisors should take note of changes to estate and gift tax provisions. The estate tax basic exclusion amount will increase to $13,990,000 in 2025, while the annual gift exclusion will rise to $19,000. These adjustments provide opportunities for more effective estate planning and wealth transfer strategies.
“Revenue Procedure 2024-40 provides detailed information on adjustments and changes to more than 60 tax provisions that will impact taxpayers when they file their returns in 2026.” – Internal Revenue Service
Other notable changes include an increase in the foreign earned income exclusion to $130,000 and a rise in the maximum adoption credit to $17,280. These adjustments reflect the IRS’s commitment to updating tax provisions to align with economic realities and support various taxpayer situations.
Looking Ahead: Expiring Provisions and Potential Changes
As taxpayers and businesses adapt to these new adjustments, it’s crucial to remember that significant changes may be on the horizon. The Tax Cuts and Jobs Act (TCJA) of 2017 provisions are set to expire at the end of December 2025, which could prompt substantial discussions and potential revisions to tax and fiscal policy.
The 2017 Tax Cuts and Jobs Act lowered taxes for individuals and businesses, but most of the changes for individuals expire in 2025 and in 2026 taxes will increase by more than $400 billion.
Now is the time for Congress to cut tax rates to their lowest level in almost a… pic.twitter.com/6BCLMjuCqg
— Cato Institute (@CatoInstitute) June 17, 2024
Experts suggest that extending the expiring TCJA provisions could increase deficits by $4.0 trillion over the 2025-2034 period. This looming expiration presents both challenges and opportunities for policymakers to reassess and potentially reform the tax code.
As we approach these critical dates, taxpayers are advised to stay informed about potential changes and consult with tax professionals to optimize their financial strategies in light of the evolving tax landscape.
