IRS Announces Major 2025 Tax Changes- Here's What They Are
New IRS Changes Coming in 2025
The IRS has introduced several updates for 2025, impacting deductions, exemptions, and credits for taxpayers.
1. Standard Deduction Increase: Starting in 2025, the standard deduction rises to $15,000 for single filers, $30,000 for married couples filing jointly, and $22,500 for heads of households. With most Americans opting for the standard deduction, this change should provide relief from inflation by putting more money back in taxpayers’ pockets.
2. Alternative Minimum Tax (AMT) Exemption: The AMT exemption, which ensures high earners pay a minimum tax, has increased to $88,100 for individuals and $137,000 for joint filers. While it might impact some high earners, middle-income earners could see little or no effect.
3. Adjusted Income Tax Brackets: To account for wage increases, income tax brackets have been adjusted, preventing taxpayers from being pushed into higher tax brackets as their salaries rise with inflation. The only rate unaffected is the top 37% tax rate for single filers.
4. Employer-Sponsored Benefits for Transportation and Parking: Monthly allowances for transportation and parking have been raised to $325, benefiting urban commuters facing high costs.
5. Health Flexible Savings Account (FSA) Contributions: The maximum allowable contribution to health FSAs increases to $3,300 of pre-tax income.
6. Foreign Earned Income Exclusion: U.S. citizens working abroad will see an increase in their exclusion income to $130,000, reducing the risk of double taxation.
7. Earned Income Tax Credit (EITC): For low- to moderate-income families with three or more children, the maximum EITC rises to $8,046, helping offset inflationary pressures.
8. Estate Tax Exclusion: The estate tax exclusion rises to $13.99 million. However, high-net-worth individuals may want to monitor this as it’s set to revert to pre-2018 levels in 2026 if no new legislation is passed.
9. Adoption Credit: New parents will see increased support, with the maximum adoption credit rising to $17,280, aimed at reducing the financial burden of qualified adoption expenses.
These and other changes are available on the IRS website. It’s wise to check for any updates specific to your tax situation so you can plan accordingly and maximize potential benefits.
