New Tax Inflation Adjustments for 2025

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New Tax Inflation Adjustments for 2025
The IRS has announced new tax inflation adjustments for the 2025 tax year, reflecting a 2.8% inflation increase. These adjustments will be in effect when you file your federal income tax return in 2026.

Additional Tax Adjustments for 2025

The IRS has also outlined several other inflation-related updates for the 2025 tax year. These include:

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) provides financial support to workers with low to moderate incomes and their families. For taxpayers with three or more qualifying children, the maximum credit will increase to $8,046 in 2025, up from $7,830 in 2024. Individuals with fewer than three children—or none at all—may still be eligible for a smaller credit, depending on income.

Health Flexible Spending Accounts (FSAs)

Health FSAs, which allow employees to save pre-tax money for approved medical expenses, will have a new contribution cap of $3,300 for 2025, an increase of $100 from the prior year. For plans permitting fund carryovers, unused balances up to $660 can roll over into the next year, up from the $640 cap in 2024.

Adoption Credit

For families adopting a child, the adoption tax credit offers relief from expenses like legal fees, travel, and other adoption costs. In 2025, the maximum credit will increase to $17,280 for the adoption of a child with special needs, up from $16,810 in 2024.

Estate Tax Exclusion

The estate tax exclusion, determining the portion of an estate not subject to federal tax, will increase to $13.99 million in 2025 from $13.61 million in 2024. This means the first $13.99 million of a taxable estate is exempt from federal tax, while any amount above this threshold may be taxed.

How the IRS Determines Tax Adjustments

Tax adjustments are influenced by inflation and calculated using the Chained Consumer Price Index for All Urban Consumers (C-CPI-U). This index, unlike the standard Consumer Price Index (CPI-U) used for Social Security adjustments, better accounts for shifts in consumer buying habits as prices change. For instance, if strawberry prices increase sharply, consumers might buy more blueberries if their price remains steady.

These tax adjustments are based on C-CPI-U data from September 2023 through August 2024, with the 2025 income threshold adjustments reflecting the 2.8% inflation rate over this period.

New tax brackets for 2025 vs. 2024

Below are charts comparing the 2024 tax brackets with the new 2025 brackets, which will be used for filings in 2026.

 

For individual single taxpayers – taxable income:
2024 2025
10% up to $11,600 up to $11,925
12% between $11,601 – $47,150 between $11,926- $48,475
22% between $47,151 – $100,525 between $48,476- $103,350
24% between $100,526 – $191,950 between $103,351- $197,300
32% between $191,951 – $243,725 between $197,301- $250,525
35% between $243,726 – $609,350 between $250,526 – $626,350
37% over $609,351 over 626,351

 

For married individuals filing jointly – taxable income:
2024 2025
10% up to $23,200 up to $23,860
12% between $23,201 – $94,300 between $23,851 – $96,950
22% between $94,301 – $201,050 between $96,951 – $206,700
24% between $201,051 – $383,900 between $206,701 – $394,600
32% between $383,901 – $487,450 between $394,601 to $501,050
35% between $487,451 – $731,200 between $501,051 to $751,600
37% over $731,201 over $751,601

 

For head of household- taxable income:
2024 2025
10% up to $16,550 up to $17,000
12% between $16,551 – $63,100 between $17,001 – $64,850
22% between $63,101 – $100,500 between $64,851 – $103,350
24% between $100,501 – $191,950 between $103,351 – $197,300
32% between $191,951 – $243,700 between $197,301 – $250,500
35% between $243,701 – $609,350 between $250,501 – $626,350
37% over $609,351 over $626,351

 

Standard Deduction for 2025

According to the IRS, the standard deductions for 2025 are as follows:

  • Single filers: $15,000
  • Heads of household: $22,500
  • Married couples filing jointly: $30,000

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