The IRS has announced the annual inflation adjustments for the year 2025, including tax rate schedules, tax tables, and cost-of-living adjustments. These numbers will be used to prepare tax returns for the year 2025, starting on January 1, 2025. Taxpayers will need to consider any changes in their circumstances, such as getting married, starting a business, or having a baby, when estimating their tax liability for the upcoming year.
The tax brackets and rates for 2025 include seven tax rates, ranging from 10% to 37%. The top marginal tax rate for individual single taxpayers will be 37% for incomes over $626,350, while married couples filing jointly will have a higher threshold at $751,600. Personal exemption amounts have been eliminated due to the 2017 tax reform law, and standard deduction amounts will increase in 2025 for individuals, married couples, and heads of household.
Child-related adjustments for the kiddie tax, child tax credit, and Earned Income Tax Credit have been outlined for 2025. The adoption credit will also see an increase, with phaseouts applying to certain income levels. The Section 199A deduction for qualified business income will remain in place, with threshold amounts adjusted for inflation. The AMT exemption rates and capital gains rates will also see adjustments for 2025.
Education-related deductions and adjustments for student loans and the Lifetime Learning Credit have been specified for 2025. The eligible educator deduction and fringe benefits related to transportation and health will also see changes. The shared individual responsibility payment has been eliminated for the tax year 2025. Information on IRAs and other retirement accounts will be released by the IRS at a later date.
The foreign-earned income exclusion amount, federal estate and gift tax exclusions, and itemized deductions for medical expenses, state and local taxes, home mortgage interest, charitable donations, and casualty and theft losses have been detailed for 2025. Taxpayers are advised to stay informed on any legislation that may impact these deductions. The official numbers published by the IRS can be found in Revenue Procedure 2024-40, and comparisons can be made to Bloomberg projections for 2025.
