The IRS has announced its annual inflation adjustments for the fiscal year 2025, and these changes will apply to tax returns filed during the 2026 tax season.
These adjustments affect various tax provisions, including standard deductions, credits, and exclusions. Let’s look into the updates so you can better prepare for your future tax obligations.
Deductions
For 2025, the standard deduction increases slightly:
- Single filers and married individuals filing separately: $15,000 (up by $400).
- Married couples filing jointly: $30,000 (up by $800).
These adjustments aim to account for inflation, potentially reducing taxable income for many taxpayers.
Alternative Minimum Tax (AMT)
The exemption amounts for the AMT have also increased:
- Single filers: $88,100 (phase-out begins at $626,350).
- Married individuals filing separately: $68,650 (phase-out begins at $626,350).
- Married couples filing jointly: $137,000 (phase-out begins at $1,252,700).
This ensures that fewer taxpayers are unintentionally subject to AMT due to rising income levels.
Credits
For taxpayers with three or more qualifying children, the maximum EITC amount increases to $8,046, up from $7,830 in 2024. Other EITC amounts and income thresholds have also been adjusted.
Adoption Credits
The maximum credit for adopting a child with special needs increases to $17,280, up from $16,810 in 2024.
Fringe Benefits
The monthly limitation for qualified transportation fringe benefits and parking increases to $325, up from $315 in 2024.
Flexible Spending Arrangements (FSAs)
The maximum employee contribution for health FSAs increases to $3,300, up from $3,200 in 2024.
Medical Savings Accounts (MSAs)
For participants with individual coverage:
- Minimum deductible: $2,850 (up by $50).
- Maximum deductible: $4,300 (up by $150).
- Maximum out-of-pocket amount: $5,700 (up from $5,550).
For family coverage:
- Minimum deductible: $5,700 (up by $150).
- Maximum deductible: $8,550 (up by $200).
- Maximum out-of-pocket limit: $10,500 (up from $10,200).
Estate Adjustments
The foreign earned income exclusion rises to $130,000, up from $126,500 in 2024.
Estate Tax Credit
The basic exclusion for estates increases to $13,990,000, up from $13,610,000.
Annual Gift Exclusion
The annual gift exclusion rises to $19,000, up from $18,000.
Adjustments
These inflation-driven changes ensure taxpayers aren’t unfairly burdened by rising costs. Knowing the updates allows you to better plan for deductions, credits, and contributions.
Whether you’re adopting a child, saving for medical expenses, or simply claiming the standard deduction, staying informed will help maximize your tax benefits.
FAQs
What is the standard deduction for 2025?
$15,000 for single filers; $30,000 for married filing jointly.
What’s the maximum EITC amount for 2025?
It’s $8,046 for taxpayers with three or more children.
How much is the foreign earned income exclusion?
It’s $130,000 for the 2025 tax year.
What’s the estate tax exclusion for 2025?
The basic exclusion amount is $13,990,000.
What’s the new adoption credit limit?
The maximum credit is $17,280 in 2025.
