The IRS announced on Oct. 22 the yearly inflation adjustments for tax year 2025. Revenue Procedure 2024-40 offers detailed information on adjustments and changes to over 60 tax provisions that will affect taxpayers when they file their returns in 2026.
The IRS highlighted the notable changes for tax year 2025, with adjustments described in the announcement applied to income tax returns filed beginning in the 2026 tax season.
In terms of standard deductions, for single taxpayers and married individuals filing separately for tax year 2025, the standard deduction increases to $15,000, an increase of $400 from 2024. For married couples filing jointly, the standard deduction climbed to $30,000, an increase of $800 from 2024. For heads of households, the standard deduction will be $22,500 for tax year 2025, an increase of $600 from 2024.
The IRS also provided the tax brackets for tax year 2025. The top tax rate stays at 37% for individual single taxpayers with incomes of more than $626,350 or $751,600 for married couples filing jointly.
The other rates are:
•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).
The IRS also announced other adjustments, such as the alternative minimum tax exemption amounts for tax year 2025. For unmarried individuals, the exemption amount increases to $88,100 ($68,650 for married individuals filing separately) and starts to phase out at $626,350. For married couples filing jointly, the exemption amount increases to $137,000 and begins to phase out at $1,252,700.
For earned income tax credits (EITC), the maximum amount for qualifying taxpayers with three or more qualifying children for tax year 2025 is $8,046, an increase from $7,830 for tax year 2024. The revenue procedure contains a table stating the maximum EITC amount for other categories, income thresholds, and phase-outs.
Another adjustment pertains to the qualified transportation fringe benefit, where for tax year 2025, the monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking rises to $325, increasing from $315 in tax year 2024.
Adjustments to the health flexible spending cafeteria plan for the taxable years starting in 2025 raise the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements to $3,300, up from $3,200 in tax year 2024. For cafeteria plans that allow the carryover of unused amounts, the maximum carryover amount rises to $660, up from $640 in tax year 2024.
The adjustments for medical savings accounts for tax year 2025 require participants who have self-only coverage plans to have an annual deductible of at least $2,850, a $50 increase from the previous tax year. However, this amount should be at most $4,300, an increase of $150 from the prior tax year. The maximum out-of-pocket expense amount rises to $5,700, increasing from $5,550 in tax year 2024.
The annual deductible for family coverage in tax year 2025 is at least $5,700, increasing from $5,550 in 2024. However, the deductible cannot be over $8,550, an increase of $200 compared to the limit for tax year 2024. The out-of-pocket expense limit for family coverage is $10,500 for tax year 2025, rising from $10,200 in tax year 2024.
Regarding the foreign earned income exclusion, for tax year 2025, it will rise to $130,000 from $126,500 in 2024.
The basic exclusion amount for estates of decedents who die during 2025 is $13,990,000, up from $13,610,000 for estates of decedents who died in 2024.
The annual exclusion for gifts will rise to $19,000 for the calendar year 2025, rising from $18,000 for 2024.
For tax year 2025, the maximum credit allowed for adopting a child with special needs is up to $17,280 for qualified adoption expenses, rising from $16,810 for tax year 2024.