The Internal Revenue Service (IRS) has announced the annual inflation adjustments for tax year 2025, affecting various tax provisions that will impact taxpayers’ filings in 2026. Key updates include:
Standard Deduction Increases
- Married Couples Filing Jointly: The standard deduction rises to $30,000, an increase of $800 from tax year 2024.
- Single Taxpayers and Married Individuals Filing Separately: The deduction increases to $15,000, up by $400.
- Heads of Household: The deduction will be $22,500, reflecting a $600 increase.
Marginal Tax Rates
The top tax rate remains at 37% for single filers with incomes over $626,350 and married couples filing jointly over $751,600. The other rates are:
- 35% for incomes over $250,525 (single) and $501,050 (joint).
- 32% for incomes over $197,300 (single) and $394,600 (joint).
- 24% for incomes over $103,350 (single) and $206,700 (joint).
- 22% for incomes over $48,475 (single) and $96,950 (joint).
- 12% for incomes over $11,925 (single) and $23,850 (joint).
- 10% for incomes $11,925 or less (single) and $23,850 or less (joint).
Alternative Minimum Tax (AMT) Exemption
- Unmarried Individuals: The exemption increases to $88,100, with a phase-out starting at $626,350.
- Married Couples Filing Jointly: The exemption rises to $137,000, phasing out at $1,252,700.
Earned Income Tax Credit (EITC)
For taxpayers with three or more qualifying children, the maximum EITC amount is $8,046, up from $7,830 in 2024.
Other Notable Adjustments
- Qualified Transportation Fringe Benefit: Monthly limitation increases to $325 from $315.
- Health Flexible Spending Arrangements: Contribution limit rises to $3,300, with a maximum carryover amount of $660.
- Medical Savings Accounts: For self-only coverage, the annual deductible must be between $2,850 and $4,300, with a maximum out-of-pocket expense of $5,700. For family coverage, the deductible ranges from $5,700 to $8,550, with an out-of-pocket limit of $10,500.
- Foreign Earned Income Exclusion: Increases to $130,000 from $126,500.
- Estate Tax Exclusion: Rises to $13,990,000 from $13,610,000.
- Annual Gift Tax Exclusion: Increases to $19,000 from $18,000.
- Adoption Credit: Maximum credit allowed increases to $17,280 from $16,810.
These adjustments are designed to account for inflation and may influence your tax planning strategies.
Start Your Filing with TruTaxx Today
With these changes on the horizon, it’s essential to begin preparing your tax filings early. Understanding how these adjustments affect your financial situation can help you maximize deductions and credits. Start Your Filing HERE.
For more detailed information, refer to the official IRS announcement.