With January approaching and inflation continuing to affect household budgets, taxpayers nationwide are gearing up for the 2025 tax season. Each year, the Internal Revenue Service (IRS) announces adjustments to more than 60 tax provisions to account for inflation. These updates can significantly impact how much taxpayers owe or receive as refunds. Here’s a closer look at the key changes for the 2024 tax year and what you can expect when filing in early 2025.
Standard deduction and tax brackets for 2024
The remarkable thing about the 2024 update is that the standard deduction will go up. The IRS raised the standard deduction for single taxpayers and married individuals filing separately to $14,600, which is an increase of $750 from 2023. A standard deduction of $29,200 will be claimed by married couples filing jointly, an increase of $1,500. Meanwhile, heads of household can claim a standard deduction of $21,900, a rise of $1,100 from the previous year.
The IRS has also updated the income tax rates for all its seven tax brackets for the 2024 tax year:
- 37% – Income over $609,350 for single filers and over $731,200 for married couples filing jointly.
- 35% – Income over $243,725 for single filers and over $487,450 for married couples filing jointly.
- 32% – Income over $191,950 for single filers and over $383,900 for married couples filing jointly.
- 24% – Income over $100,525 for single filers and over $201,050 for married couples filing jointly.
- 22% – Income over $47,150 for single filers and over $94,300 for married couples filing jointly.
- 12% – Income over $11,600 for single filers and over $23,200 for married couples filing jointly.
- 10% – Income of $11,600 or less for single filers and less than $23,200 for married couples filing jointly.
Read more: Filing your tax return on IRS – Here’s how to avoid the most common mistakes that cause big problems.
Exemptions, credits, and savings adjustments
Henceforth, the IRS revised certain exemptions and credits in view of economic changes. For example, the alternative minimum tax (AMT) exemption has additional increases for 2024 to an amount of $85,700 to be accorded to single filers as against the phase-out level of $609,350 (up from $81,300 and $578,150, respectively, in 2023). Likewise, for married couples filing jointly, the AMT exemption has increased to $133,300, with a phase-out beginning at $1,218,700.
Also, one new item is that of the earned-income tax credit (EITC), which has increased by $400 to $7,830 for taxpayers with three or more qualifying children—one of the most valuable benefits for eligible low- and moderate-income families.
For individuals, the contribution limit has increased to $3,200 for 2024, subject to Health Saving Accounts (HSAs). Meanwhile, as regards families using self-only medical savings accounts, the maximum limit on out-of-pocket expenses has gone up by $250 to $5,550 compared to last year. On the other hand, a family coverage category will attract a limit of $10,200, which is $550 higher than in 2023.
Looking ahead to 2025 tax changes
For the 2025 tax season, the IRS announced further changes in tax provisions. Single filers and married individuals filing their returns separately will have their standard deduction increased to $15,000, which is a change of $400 from 2024. Married couples will claim up to $30,000 as a standard deduction, while heads of household will have a standard deduction of $22,500, with gradual increases of $800 and $600, respectively.
The 2025 tax brackets are also likely to change a little:
- 37% – Income over $626,350 for single filers and over $751,600 for married couples filing jointly.
- 35% – Income over $250,525 for single filers and over $501,050 for married couples filing jointly.
- 32% – Income over $197,300 for single filers and over $394,600 for married couples filing jointly.
- 24% – Income over $103,350 for single filers and over $206,700 for married couples filing jointly.
- 22% – Income over $48,475 for single filers and over $96,950 for married couples filing jointly.
- 12% – Income over $11,925 for single filers and over $23,850 for married couples filing jointly.
- 10% – Income of $11,925 or less for single filers and less than $23,850 for married couples filing jointly.
The EITC cap will be increased to $8,046, from $216 to $1,213, and for taxpayers with three or more qualifying children, the maximum increase for the year 2025 would be from the current level of $8,046 to $8,046.
In light of these changes, it’s a good idea to take a look at your overall financial situation as well as consider any effects on your potential tax liability or refund.
