2025 Tax Season Updates – What You Need To Know Before Filing Your Return

The Internal Revenue Service (IRS) has released the annual inflation adjustments for the 2025 fiscal year. These changes will impact tax returns filed during the 2026 tax season. The adjustments, outlined in Revenue Procedure 2024-40, include updates to more than 60 tax provisions. Below, we highlight some of the most significant changes that taxpayers should know.

Standard Deduction

The standard deduction for 2025 has risen, offering taxpayers larger deductions:

• Single Filers and Married Filing Separately: Increased to $15,000, up by $400 from 2024.
• Married Filing Jointly: Increased to $30,000, an $800 increase from 2024.

These increases provide taxpayers with more significant relief and could result in lower taxable income.

Alternative Minimum Tax (AMT)

The AMT exemption amounts have also been adjusted:

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• Single Filers: Increased to $88,100, with phaseouts starting at $626,350.
• Married Filing Jointly: Increased to $137,000, with phaseouts starting at $1,252,700.
• Married Filing Separately: Increased to $68,650.

The AMT changes aim to provide some relief to taxpayers potentially subject to this parallel tax system.

Earned Income Tax Credit (EITC)

For eligible taxpayers with three or more qualifying children, the maximum EITC amount for 2025 rises to $8,046, up from $7,830 in 2024. Phase-in and phase-out thresholds have also been updated. Taxpayers in other EITC categories should refer to the detailed IRS table for specific amounts.

Transportation Benefits

The monthly limit for qualified transportation fringe benefits and qualified parking increases to $325, up from $315 in 2024. This adjustment could help employees offset commuting costs.

Adjustments

• Employee Contribution Limit: Increased to $3,300, up by $100 from 2024.

Medical Savings Accounts (MSAs)

For individual coverage:

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• Minimum Annual Deductible: $2,850, an increase of $50.
• Maximum Annual Deductible: $4,300, an increase of $150.
• Maximum Out-of-Pocket Amount: $5,700, up from $5,550.

For family coverage:

• Minimum Annual Deductible: $5,700, up from $5,550.
• Maximum Annual Deductible: $8,550, an increase of $200.
• Out-of-Pocket Limit: $10,500, up from $10,200 in 2024.

Foreign Earned Income

The exclusion amount for foreign earned income increases to $130,000, up from $126,500 in 2024. This adjustment benefits U.S. citizens and residents working abroad.

Gift Tax Adjustments

The basic exclusion amount for estates of decedents who die in 2025 rises to $13,990,000, an increase from $13,610,000 in 2024.

Annual Gift Tax

The annual gift tax exclusion increases to $19,000 for 2025, up from $18,000 in 2024.

Adoption Tax Credit

Taxpayers adopting a child with special needs or incurring qualified adoption expenses will benefit from an increased adoption tax credit of $17,280, up from $16,810 in 2024.

Key Takeaways

These IRS adjustments for the 2025 fiscal year reflect rising inflation and aim to provide more equitable tax relief. Taxpayers are encouraged to review these changes and consult a tax professional to know how they may affect their financial planning and tax liabilities in the 2026 filing season.

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