2025 Tax Changes from IRS: Bigger Deductions, New Breaks, and More for Millions of Americans!
2025 is fast approaching, and it’s the perfect time to start planning your finances for the upcoming year. One of the most important changes to keep an eye on is the updates announced by the IRS (Internal Revenue Service) for tax rates.
These changes affect a wide range of areas, from standard deductions to tax brackets, and they could mean big differences in your tax filings.
The IRS has announced a total of 60 changes, which are set to take effect in 2025. Most of these changes aim to help taxpayers keep up with inflation and rising wages. Here’s a breakdown of the nine biggest changes you need to know about:
1. New IRS Tax Breaks
One of the most significant updates for 2025 is the increase in the standard deduction. The standard deduction is a set amount that reduces your taxable income, making it easier for most people to file their taxes without needing to track every little expense.
In 2025, the standard deduction will increase to $15,000 for single filers, $30,000 for married couples filing jointly, and $22,500 for heads of households.
Additionally, the Alternative Minimum Tax (AMT) exemption will also increase. This tax ensures high earners pay at least a minimum tax, even if they have a lot of deductions. The AMT exemption for 2025 will rise to $88,100 for single filers and $137,000 for married couples filing jointly.
2. New Tax Brackets
In 2025, tax brackets will also change to keep up with inflation. This means that the income thresholds at which tax rates apply will increase, reducing the burden on taxpayers. The new marginal tax rates are:
- 37% for incomes over $626,350 (or $751,600 for married couples filing jointly).
- 35% for incomes over $250,525 (or $501,050 for married couples filing jointly).
- 32% for incomes over $197,300 (or $394,600 for married couples filing jointly).
- 24% for incomes over $103,350 (or $206,700 for married couples filing jointly).
- 22% for incomes over $48,475 (or $96,950 for married couples filing jointly).
- 12% for incomes over $11,925 (or $23,850 for married couples filing jointly).
- 10% for incomes $11,925 or less (or $23,850 or less for married couples filing jointly).
3. New Allowances for Commuters and Workers
If you’re a commuter, the IRS has good news. Starting in 2025, workers who get employer-sponsored transportation benefits can receive up to $325 per month to help with transportation and parking costs.
Additionally, the contribution limit for health flexible savings accounts (FSAs) is also increasing. These accounts allow workers to set aside pre-tax money for medical expenses. The contribution limit for 2025 will rise to $3,300, with a maximum carryover of $660. This is a big help for employees looking to save on health-related expenses.
4. Tax Break for Americans Working Abroad
If you’re an American working abroad, you can also look forward to a new tax benefit. The IRS will allow you to exclude up to $130,000 of foreign-earned income from taxes. This is up from $126,500 in 2024, meaning you can avoid double taxation on your foreign income.
5. Earned Income Tax Credit Increase
For low- to moderate-income families, the Earned Income Tax Credit (EITC) will increase in 2025. This credit helps support working families with children, especially those with three or more children. The maximum EITC for 2025 will rise to $8,046, offering more support for families who need it.
6. Estate Tax Exclusion Increases
For those with large estates, the estate tax exclusion will increase to $13.99 million in 2025. This means that estates worth under this amount will not be taxed, making it easier for families to pass down wealth.
7. Adoption Tax Credit Increase
Finally, for those considering adoption, the IRS has increased the maximum adoption credit to $17,280, up from $16,810. This helps reduce the financial burden for families adopting children.
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