As January approaches, with inflation hitting once again Americans’ budgets, taxpayers across the country start readying for the filing season of the year 2025. To make it easier for everyone, every year, the IRS announces the inflation adjustments which affect more than 60 tax provisions. Let’s have a closer view into the most critical changes for the 2024 and 2025 tax years.
Standard deduction and tax rates for 2024
For the 2024 tax year, the IRS introduced several adjustments, including increases to the standard deduction:
- Single Filers and Married Individuals Filing Separately: The standard deduction rose to $14,600, up by $750 from 2023.
- Married Couples Filing Jointly: The deduction increased to $29,200, reflecting a $1,500 rise.
- Heads of Household: The standard deduction grew by $1,100, totaling $21,900.
These changes aim to account for inflation, allowing taxpayers to shield more of their income from federal taxation.
The tax brackets for 2024 remain progressive, with seven tiers based on income levels:
- 37%: Single income above $609,350; married joint filers over $731,200.
- 35%: Single income above $243,725; married joint filers over $487,450.
- 32%: Single income above $191,950; married joint filers over $383,900.
- 24%: Single income above $100,525; married joint filers over $201,050.
- 22%: Single income above $47,150; married joint filers over $94,300.
- 12%: Single income above $11,600; married joint filers over $23,200.
- 10%: Single income up to $11,600; married joint filers up to $23,200.
These adjustments are designed to minimize the impact of inflation, ensuring taxpayers do not pay higher taxes solely due to increased earnings.
Key tax credits and exemptions
Tax changes for 2024 included many provisions such as the alternative minimum tax and the earned income tax credit.
In the example of Alternative Minimum Tax (AMT): The exemption amount gets up very high $85,700 for an individual and $133,300 for a married couple filing jointly. The phase-out thresholds were also raised to $609,350 and $1,218,700 for the two. At the same time, it now allows high-income taxpayers to pay at least some tax on an inflation-adjusted basis.
The Earned Income Tax Credit (EITC): The amount of this credit increases to $7,830, an increase of $400 over 2023 for taxpayers with three or more qualifying children.
Health savings account (HSA) contributions increased for 2024 tax year. Individual contribution is $3,200, for family coverage $7,750; out-of-pocket limits increased to $5,550 for individuals, $10,200 per family..
What to Expect for Tax Year 2025
The IRS has also announced changes for the 2025 tax year, impacting filings beginning in January 2026. These include further increases to the standard deduction:
- Single Filers and Married Individuals Filing Separately: Rising to $15,000, up $400 from 2024.
- Married Couples Filing Jointly: Increasing to $30,000, an $800 rise.
- Heads of Household: Growing to $22,500, up $600.
Tax brackets for 2025 also reflect inflation adjustments:
- 37%: Single income above $626,350; married joint filers over $751,600.
- 35%: Single income above $250,525; married joint filers over $501,050.
- 32%: Single income above $197,300; married joint filers over $394,600.
- 24%: Single income above $103,350; married joint filers over $206,700.
- 22%: Single income above $48,475; married joint filers over $96,950.
- 12%: Single income above $11,925; married joint filers over $23,850.
- 10%: Single income up to $11,925; married joint filers up to $23,850.
The EITC for 2025 will also increase, with the maximum amount for taxpayers with three or more qualifying children rising to $8,046.
Preparing for filing season
The following adjustments by the IRS are intended to alleviate the effects of inflation and create certainty for filing taxpayers in the upcoming tax season. Taxpayers are encouraged to analyze them and counsel with a tax professional or online resources for optimal filing and greatest savings.
