IRS announces 2025 inflation adjustments to tax rates

The Internal Revenue Service (IRS) has released its annual inflation adjustments for tax year 2025, affecting over 60 tax provisions.

Outlined in Revenue Procedure 2024-40, these changes apply to income tax returns filed in 2026, providing updates to standard deductions, marginal rates, and other key tax credits.

Among other notable updates, the IRS revealed inflation adjustments to the standard deduction, the earned income tax credit, and alternative minimum tax exemption amounts, impacting taxpayers across various income levels.

For tax year 2025, the standard deduction for single filers and married individuals filing separately will rise by $400, reaching $15,000. For heads of households, the standard deduction will increase by $600 to $22,500. Married couples filing jointly will see an $800 increase, bringing their deduction to $30,000. These adjustments, reflecting inflation, aim to ease the tax burden by reducing taxable income for many households.

The IRS has maintained the top marginal tax rate at 37 percent for individual taxpayers earning more than $626,350, and for married couples filing jointly with incomes exceeding $751,600. Lower down the bracket, single filers earning more than $250,525, and married couples earning more than $501,050 would be taxed at 35 percent. 

A minimum marginal tax rate of 10 percent would be applied to those earning $11,925 or less. For married couples, that tax rate would be implemented for joint filers earning a maximum of $23,850 in income.

The alternative minimum tax exemption amounts will also increase. For unmarried individuals, the AMT exemption rises to $88,100, while married couples filing jointly will see the exemption increase to $137,000. The phaseout thresholds begin at $626,350 for single filers and $1,252,700 for married couples.

In addition, the maximum EITC for families with three or more qualifying children will increase to $8,046, up from $7,830 in tax year 2024.

For tax year 2025, employees contributing to health flexible spending arrangements will see the contribution limit increase to $3,300, up from $3,200 in 2024, providing additional flexibility for workers managing healthcare costs.

Among other items that used to be indexed to inflation, the IRS said thresholds for the Lifetime Learning Credit will remain unchanged for tax year 2025. The credit is phased out for taxpayers with a modified adjusted gross income exceeding $80,000 for single filers or $160,000 for those filing jointly. These figures have not been adjusted for inflation since 2020.