The year has changed, as has the IRS. The Internal Revenue Service (IRS) has published its annual list of changes to tax brackets and standard deductions for fiscal year 2025.
Although the changes are minor, it is critical that all system users remain informed in order to avoid failure or loss of information. We have outlined all of the changes that will take place in 2025!
Why is the IRS making changes?
The Internal Revenue Service (IRS) is implementing changes to keep up with inflation. Beginning in 2025, they will increase the contribution limits to tax-deferred retirement plans, as well as the standard mileage rate by 3 cents.
Why are these changes important?
The goal is to avoid “bracket creep,” which occurs when your salary increases due to inflation but does not mean you have more money to spend. However, because your gross income is higher, you are placed in a higher tax bracket and pay higher taxes.
To avoid this, tax brackets and deductions have been revised. The goal is to protect workers and their families by ensuring that taxes do not consume salary increases that, in reality, only offset the rise in the cost of living.
Individuals and married couples filing jointly have had their marginal tax brackets updated for tax year 2025. This means that different tax rates apply depending on your income.
For example, the lowest incomes (up to $11,925 for individuals and $23,850 for married couples) are taxed at a 10% rate. On the other hand, the highest incomes (above $626,351 for individuals and $751,601 for married couples) are subject to a 37% rate.
- 10%: Up to $11,925 (individuals) / $23,850 (couples).
- 12%: Between $11,926 and $48,475 (individuals) / $23,851 and $96,950 (couples).
- 22%: Between $48,476 and $103,350 (individuals) / $96,951 and $206,700 (couples).
- 24%: Between $103,351 and $197,300 (individuals) / $206,701 and $394,600 (couples).
- 32%: Between $197,301 and $250,525 (individuals) / $394,601 and $501,050 (couples).
- 35%: Between $250,526 and $626,350 (individuals) / $501,051 and $751,600 (couples).
- 37%: More than $626,351 (individuals) / $751,601 (couples).
Deduction for tax year 2025
The standard deduction goes up in 2025, meaning you can deduct more taxable income before figuring out how much you owe.
- Married couples filing jointly: The deduction increases to $30,000, up $800 from $29,200 in 2024.
- Single filers: Their deduction goes up to $15,000, up $400 from $14,600 last year.
- Heads of household: The new deduction will be $22,500, up $600 from $21,900 in 2024.
What’s new in inheritances:
The basic exclusion for inherited assets increases to $13.99 million from $13.61 million last year. This means that you can transfer more assets tax-free.
The annual limit for tax-exempt gifts will now be $19,000, up from $18,000 in 2024. This allows for more generous gifts without incurring tax liabilities.
And what about retirement?
The IRS has also made important changes to retirement savings plans in 2025, allowing taxpayers to save more:
- 401(k), 403(b) and most 457 plans: The contribution limit rises to $23,500, an increase of $500 from 2024.
- IRAs: The contribution limit remains at $7,000.
- Additional contributions for workers ages 60 to 63: This group will be able to contribute up to $11,250 as an additional contribution, significantly higher than the $7,500 allowed for other ages.
Will there be more changes?
Finally, Social Security beneficiaries will receive a “extra,” as the Social Security Administration has announced a 2.5% increase in retirement and disability payments for 2025, known as the COLA, which keeps beneficiaries’ pockets intact when the country experiences inflation. This translates into an additional $50 per month for each user.
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