Taxpayers to See Modest Changes in 2025 Inflation Adjustments
The Internal Revenue Service (IRS) has announced the annual inflation adjustments for tax brackets, standard deductions, and various tax credits for 2025. With inflation cooling down, taxpayers can expect relatively slight changes ahead.
Standard Deductions to Increase
The standard deduction will rise to $15,000 for single taxpayers and married individuals filing separately, up $400 from 2024. For married couples filing jointly, the standard deduction will climb to $30,000, an increase of $800 from 2024. Heads of households will see a standard deduction of $22,500, up $600 from 2024.
Tax Brackets to Shift
Inflation adjustments will result in modest changes to tax brackets in 2025. The lowest tax rate of 10% will apply to singles with incomes of $11,925 or less and married couples filing jointly with incomes of $23,850 or less. The top marginal tax rate of 37% will apply to individual single taxpayers with incomes greater than $626,350 and married couples filing jointly with incomes above $751,600.
Other Key Changes
- The maximum earned income tax credit will increase to $8,046 in 2025, up $216 from 2024, for qualifying taxpayers with three or more qualifying children.
- The limit for employee salary reductions for contributions to health flexible spending arrangements will rise to $3,300, a $100 boost from 2024.
- The maximum credit allowed for an adoption of a child with special needs will increase to $17,280, up from $16,810 in 2024.
No Increase in Taxes Expected
According to Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, taxpayers who have the same income in 2025 as in 2024 should see no increase in taxes or a decrease in taxes after the IRS inflation adjustments. The adjustments are designed to prevent taxpayers from being pushed into higher tax brackets due to inflation.
What This Means for Taxpayers
The 2025 inflation adjustments represent the smallest inflation-related changes since 2021. While taxpayers may not see significant changes, the adjustments will help prevent tax bills from increasing due to inflation. As always, it’s essential for taxpayers to review their individual circumstances and consult with a tax professional to ensure they are taking advantage of the tax credits and deductions available to them.
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