Ladies and gentlemen, the IRS has just made some significant changes to the U.S. tax code that will have an impact on how much you owe or save in 2025. These changes, aimed at providing relief to taxpayers, include increases in standard deductions, tax bracket thresholds, and other key areas. The adjustments also cover areas such as adoption, commuting, and earning income from outside the country.
In high-cost cities, the hike in transportation benefits and changes to medical savings options will provide much-needed relief for families managing health-care costs. For those in higher tax brackets or planning to leave an inheritance, the updates to the alternate minimum tax (AMT) and estate tax are essential to consider. Middle-income families will benefit directly from the standard deduction increase and the boost in earned income tax credit.
With over 60 changes announced by the IRS, it’s crucial to understand how these updates will impact your specific financial situation. It’s wise to consult a tax professional to make the most of these changes and ensure that you benefit from them in the upcoming tax year. Keep in mind that these changes will take effect in 2025, so it’s important to plan ahead and make the necessary adjustments to maximize their benefits.
You deserve a break
It’s time to celebrate because almost all American tax filers will benefit from a great change: the standard deduction is increasing. This means extra cash for the 90% of people who don’t itemize their deductions, helping to offset the effects of inflation.
Single taxpayers can now deduct $15,000, which is $400 more than in 2024. Married couples filing jointly get a bump to $30,000, and heads of households can claim $22,500. This increase could result in paying less in taxes, especially for those who don’t itemize.
But wait, there’s more! Middle-income earners will also benefit from an increase in the Alternative Minimum Tax exemption. For individuals, the exemption has increased to $88,100, and for joint filers, it’s $137,000. This adjustment could mean some middle-income earners no longer have to pay the AMT, leading to tax savings for them.
Even if you received a raise, the IRS has prepared for that as well. Income tax brackets have been adjusted to accommodate rising wages, with the 37% top tax rate applying to singles earning over $626,350 and married couples earning over $751,600. With other bracket adjustments this year, some households could end up in lower tax brackets, potentially lowering their tax bills. So, there’s a lot to look forward to when it comes to tax savings this year!
Work hard, keep more
Are you one of the millions of American workers who are back to commuting to the office a few days a week? For those who receive employer-sponsored benefits, the IRS raised the monthly allowance for transportation and parking to $325. This may be especially helpful in urban areas where transportation costs are steep.
Employees can also now contribute up to $3,300 to health flexible savings accounts, with a carryover maximum of $660. This increase allows workers to set aside pre-tax money for medical expenses, helping ease the burden of health care costs.
And as for those who’ve sought a new life outside of the U.S., Americans working in other countries can exclude up to $130,000 of foreign-earned income in 2025, up from $126,500. This adjustment helps U.S. citizens abroad by minimizing their taxable income and alleviating double taxation.
Family-friendly policies
In 2025, the government is making positive changes to support working families and individuals. The maximum earned income tax credit for low- to moderate-income families with three or more children is increasing to $8,046, providing valuable financial support as living costs rise. This credit will help ensure that hardworking families have the financial resources they need to thrive.
At the same time, higher earners will be able to pass on more of their wealth to loved ones and charitable causes as the estate tax exclusion rises to $13.99 million for estates in 2025. This change will have a significant impact on high net worth individuals and estate planning, potentially protecting more assets from estate taxes.
For those looking to start or expand their families through adoption, the IRS has introduced a new rule to provide financial support. The maximum adoption credit has increased to $17,280, easing the financial burden associated with adoption and helping to make the adoption process more accessible for families. These changes demonstrate a commitment to supporting families and individuals at all income levels, ensuring that everyone has the opportunity to thrive and succeed.