As communicated each year, the IRS has updated some of the deductions, tax exemptions, tax exclusions and other tax items based on inflation. In several media, this has been celebrated as the IRS increasing the threshold and in some cases creating clickbait headlines to attract readers, but the reality is that each fall the IRS announces the inflation increased changes and this year has been the smallest raise (around 2.8%) in several years.

Some of the most relevant increases are the following as mentioned in the IR-2024-273 release (note that the increase impacted more than 60 different tax provisions):

  • Standard Deductions. For single taxpayers and married individuals filing separately for tax year 2025, the standard deduction rises to $15,000 for 2025, an increase of $400 from 2024. For married couples filing jointly, the standard deduction rises to $30,000, an increase of $800 from tax year 2024. For heads of households, the standard deduction will be $22,500 for tax year 2024, an increase of $600 from the amount for tax year 2024.
  • Marginal Rates. For tax year 2025, the top tax rate remains 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly). The other rates have increased too.
  • Earned Income Tax Credits. For qualifying taxpayers who have three or more qualifying children, the tax year 2025 maximum Earned Income Tax Credit amount is $8,046, an increase from $7,830 for tax year 2024. The revenue procedure contains a table providing maximum EITC amount for other categories, income thresholds and phase-outs.
  • Qualified Transportation Fringe Benefit. For tax year 2025, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking rises to $325, increasing from $315 in tax year 2024.
  • Health Flexible Spending Cafeteria Plans. For the taxable years beginning in 2025, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements rises to $3,300, increasing from $3,200 in tax year 2024. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount rises to $660, increasing from $640 in tax year 2024.
  • Medical Savings Accounts. For tax year 2025, participants who have self-only coverage the plan must have an annual deductible that is not less than $2,850 (a $50 increase from the previous tax year), but not more than $4,300 (an increase of $150 from the previous tax year).

The maximum out-of-pocket expense amount rises to $5,700, increasing from $5,550 in tax year 2024. For family coverage in tax year 2025, the annual deductible is not less than $5,700, increasing from $5,550 in tax year 2024; however, the deductible cannot be more than $8,550, an increase of $200 versus the limit for tax year 2024. For family coverage, the out-of-pocket expense limit is $10,500 for tax year 2025, rising from $10,200 in tax year 2024.

  • Foreign Earned Income Exclusion. For tax year 2025, the foreign earned income exclusion increases to $130,000, from $126,500 in tax year 2024.
  • Estate Tax Credits. Estates of decedents who die during 2025 have a basic exclusion amount of $13,990,000, increased from $13,610,000 for estates of decedents who died in 2024.
  • Annual Exclusion for Gifts increases to $19,000 for calendar year 2025, rising from $18,000 for calendar year 2024.
  • Adoption Credits. For tax year 2025, the maximum credit allowed for an adoption of a child with special needs is the amount of qualified adoption expenses up to $17,280, increased from $16,810 for tax year 2024.

 

Link CNBC – IRS announces bigger estate and gift tax exemption for 2025

Link Kiplinger – New 2025 Child Tax Credit Announced: How Much Is It?

Link CBS news – IRS has announced its new 2025 tax brackets. Here’s what to know.

Link IRS – IRS releases tax inflation adjustments for tax year 2025