WASHINGTON, D.C. — The Internal Revenue Service (IRS) has released the annual inflation adjustments for tax year 2025, encapsulated in Revenue Procedure 2024-40. These adjustments, impacting over 60 tax provisions, are designed to align with the economic shifts and will influence tax returns filed in 2026. Among the most consequential changes are those related to standard deductions, marginal tax rates, and other tax provisions.
Standard Deductions and Marginal Tax Rates
For single taxpayers and married individuals filing separately, the standard deduction will rise to $15,000, marking a $400 increase from 2024. Married couples filing jointly will see their standard deduction increase by $800, reaching $30,000. Meanwhile, heads of households will benefit from a $600 increase, setting their standard deduction at $22,500 for the 2025 tax year.
The marginal tax rates for 2025 remain steady at the top bracket of 37% for single taxpayers with incomes surpassing $626,350 and for married couples filing jointly with incomes exceeding $751,600. Notable threshold adjustments occur across other brackets, such as the 35% rate starting at incomes over $250,525 for individuals and $501,050 for couples filing jointly.
Adjustments in Tax Credits and Benefits
The IRS has also adjusted the alternative minimum tax exemption amounts, with the exemption for unmarried individuals increasing to $88,100 and beginning to phase out at $626,350. Married couples filing jointly will see their exemption rise to $137,000, with phase-out commencing at $1,252,700.
The Earned Income Tax Credit (EITC) for taxpayers with three or more qualifying children will increase to a maximum of $8,046. Changes also extend to the qualified transportation fringe benefit, which will see its monthly limitation rise to $325, and to health flexible spending arrangements, with employee contribution limits climbing to $3,300.
Other Notable Adjustments
For participants in medical savings accounts, the deductible threshold for self-only coverage will range between $2,850 and $4,300, while family coverage deductibles will span from $5,700 to $8,550. The foreign earned income exclusion sees a notable increase to $130,000, reflecting a rise from $126,500 in 2024.
In estate and gift taxes, the basic exclusion amount for estates of decedents will rise to $13,990,000, and the annual exclusion for gifts will increase to $19,000. Adoption credits will also see an enhancement, with the maximum credit for adopting a child with special needs reaching $17,280.
Renewal of Preparer Tax Identification Numbers (PTINs)
In conjunction with these adjustments, the IRS has begun processing renewals for preparer tax identification numbers (PTINs) for the 2025 tax season. Over 810,000 tax return preparers nationwide are required to renew their PTINs to continue preparing federal tax returns for compensation. The renewal fee remains at $19.75, with the process available online for convenience.
The IRS underscores the importance of timely PTIN renewal to avoid penalties, urging tax professionals to utilize either the online system or the paper Form W-12 for the application process. The IRS continues to promote its Annual Filing Season Program, encouraging non-credentialed preparers to enhance their expertise through continuing education.
These inflation adjustments and procedural updates aim to improve the accuracy and integrity of federal tax returns, ultimately benefitting both taxpayers and tax professionals.
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