2025 is almost here, and it’s time to start organizing your money for the year. What better place to start than to learn about the changes the Internal Revenue Service (IRS) is introducing in the US tax code.
The IRS is making various changes for the new year, the majority of which are intended to alter taxpayer payments through increases in standard deductions, tax bracket thresholds, and other crucial areas.
Other changes are more specific, addressing adoption, commuting, and generating income from outside the country, but they are all significant, particularly if they apply to you. There will be a total of 60 modifications enacted, and if you have complex taxes, you should review the entire thorough list, but here are nine of the most crucial and significant changes to the system.
New IRS tax breaks
Not all income is taxed; taxpayers can take advantage of various deductions. To make things easier for the majority of taxpayers, the IRS established a standard deduction years ago, eliminating the need for most to compute them.
For 90% of people, this deduction is greater than the itemized deduction they can claim, thus it is a no-brainer to take it. The good news is that it will go up in 2025. Single taxpayers can now deduct $15,000, married couples filing jointly enjoy a rise to $30,000, and heads of households can claim $22,500.
The Alternative Minimum Tax exemption is also being increased to keep up with inflation and wages. This tax is in place to ensure that high incomes pay a minimum tax because their exemptions and breaks may prevent them from paying anything, but it can be burdensome for middle-income workers. In 2025, it will rise to $88,100 for individuals and $137,000 for joint filers.
While the rise is not significant (in 2024, it was $85,700 for single filers), it will reduce certain burdens. However, this is not the only strategy used to combat inflation in compensation changes; the IRS has modified income tax brackets to suit rising earnings. The new marginal tax rate will be:
- 37% for incomes over $626,350 ($751,600 for married couples filing jointly).
- 35% for incomes over $250,525 ($501,050 for married couples filing jointly).
- 32% for incomes over $197,300 ($394,600 for married couples filing jointly).
- 24% for incomes over $103,350 ($206,700 for married couples filing jointly).
- 22% for incomes over $48,475 ($96,950 for married couples filing jointly).
- 12% for incomes over $11,925 ($23,850 for married couples filing jointly).
- 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).
New tax allowances for workers
Commuters with employer-sponsored benefits will receive a $325 monthly allowance for transportation and parking, allowing them to cover some of the expenditures, particularly in high-cost areas.
Health flexible savings accounts, which are typically employer-sponsored, will also see an increase in contribution limits, now up to $3,300, as well as a carryover maximum of $660. These accounts allow employees to set away pre-tax money for medical bills, thereby reducing the burden of health-care costs. Self-employed people may also contribute if they have a high-deductible health plan.
Americans working overseas will also benefit from an increase in the amount of foreign-earned income that can be excluded, from $126,500 to $130,000. This enables them to avoid double taxation.
Other important changes
The maximum earned income tax credit, which assists working low- to moderate-income families with three or more children as living expenses grow, will be increased to $8,046.
Those on the opposite end of the spectrum will be able to convey their inheritance with more ease as the estate tax exclusion increases to $13.99 million for estates in 2025.
Finally, those considering adoption will see the maximum adoption credit boosted to $17,280, up from $16,810, to help alleviate the financial strain of adoption.