IR-2024-273, Oct. 22, 2024 WASHINGTON The Internal Revenue Service announced today the annual inflation adjustments for tax year 2025. Revenue Procedure 2024-40 PDF provides detailed information on adjustments and changes to more than 60 tax provisions that will impact taxpayers when they file their returns in 2026.
The tax year 2025 adjustments described below generally apply to income tax returns to
be filed starting tax season 2026. The tax items for tax year 2025 of greatest interest to
many taxpayers include the following dollar amounts:
Standard deductions. For single taxpayers and married individuals filing
separately for tax year 2025, the standard deduction rises to $15,000 for 2025, an
increase of $400 from 2024. For married couples filing jointly, the standard
deduction rises to $30,000, an increase of $800 from tax year 2024. For heads of
households, the standard deduction will be $22,500 for tax year 2025, an increase
of $600 from the amount for tax year 2024.
Marginal rates. For tax year 2025, the top tax rate remains 37% for individual
single taxpayers with incomes greater than $626,350 ($751,600 for married couples
filing jointly). The other rates are:
o 35% for incomes over $250,525 ($501,050 for married couples filing jointly).
o 32% for incomes over $197,300 ($394,600 for married couples filing jointly).
o 24% for incomes over $103,350 ($206,700 for married couples filing jointly).
o 22% for incomes over $48,475 ($96,950 for married couples filing jointly).
o 12% for incomes over $11,925 ($23,850 for married couples filing jointly).
o 10% for incomes $11,925 or less ($23,850 or less for married couples filing
jointly).
Alternative minimum tax exemption amounts. For tax year 2025, the exemption
amount for unmarried individuals increases to $88,100 ($68,650 for married
individuals filing separately) and begins to phase out at $626,350. For married
couples filing jointly, the exemption amount increases to $137,000 and begins to
phase out at $1,252,700.
Earned income tax credits. For qualifying taxpayers who have three or more
qualifying children, the tax year 2025 maximum Earned Income Tax Credit amount
is $8,046, an increase from $7,830 for tax year 2024. The revenue procedure
contains a table providing maximum EITC amount for other categories, income
thresholds and phase-outs.
Qualified transportation fringe benefit. For tax year 2025, the monthly limitation
for the qualified transportation fringe benefit and the monthly limitation for
qualified parking rises to $325, increasing from $315 in tax year 2024.
Health flexible spending cafeteria plans. For the taxable years beginning in 2025,
the dollar limitation for employee salary reductions for contributions to health
flexible spending arrangements rises to $3,300, increasing from $3,200 in tax year
2024. For cafeteria plans that permit the carryover of unused amounts, the
maximum carryover amount rises to $660, increasing from $640 in tax year 2024.
Medical savings accounts. For tax year 2025, participants who have self-only
coverage the plan must have an annual deductible that is not less than $2,850 (a
$50 increase from the previous tax year), but not more than $4,300 (an increase of
$150 from the previous tax year).
The maximum out-of-pocket expense amount rises to $5,700, increasing from
$5,550 in tax year 2024.
For family coverage in tax year 2025, the annual deductible is not less than $5,700,
increasing from $5,550 in tax year 2024; however, the deductible cannot be more
than $8,550, an increase of $200 versus the limit for tax year 2024. For family
coverage, the out-of-pocket expense limit is $10,500 for tax year 2025, rising from
$10,200 in tax year 2024.
Foreign earned income exclusion. For tax year 2025, the foreign earned income
exclusion increases to $130,000, from $126,500 in tax year 2024.
Estate tax credits. Estates of decedents who die during 2025 have a basic
exclusion amount of $13,990,000, increased from $13,610,000 for estates of
decedents who died in 2024.
Annual exclusion for gifts increases to $19,000 for calendar year 2025, rising from
$18,000 for calendar year 2024.
Adoption credits. For tax year 2025, the maximum credit allowed for an adoption
of a child with special needs is the amount of qualified adoption expenses up to
$17,280, increased from $16,810 for tax year 2024.
By statute, certain items that were indexed for inflation in the past are currently not
adjusted.
Personal exemptions for tax year 2025 remain at 0, as in tax year 2024. The
elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act
of 2017.
Itemized deductions. There is no limitation on itemized deductions for tax year
2025, as in tax year 2024 and preceding, to tax year 2018. The limitation on
itemized deductions was eliminated by the Tax Cuts and Jobs Act of 2017.
Lifetime learning credits. The modified adjusted gross income amount used by
taxpayers to determine the reduction in the Lifetime Learning Credit provided in
Sec. 25A(d)(1) of the Internal Revenue Code is not adjusted for inflation for taxable
years beginning after Dec. 31, 2020. The Lifetime Learning Credit is phased out for
taxpayers with modified adjusted gross income in excess of $80,000 ($160,000 for
joint returns).
These provisions go into effect in 2025:
The following are some of the tax changes for 2024.
The maximum net self-employment earnings subject to the social security part of the self-employment tax is $168,600 for 2024. There is no maximum limit on earnings subject to the Medicare part.
New deduction: Effective for 2025 through 2028, employees and self-employed
individuals may deduct qualified tips received in occupations listed by the IRS as
customarily and regularly receiving tips on or before December 31, 2024, and that are
reported on a Form W-2, Form 1099, or other specified statement furnished to the
individual or reported directly by the individual on Form 4137.
“Qualified tips” are voluntary cash or charged tips received from customers or through tip
sharing
Maximum annual deduction is $25,000; for self-employed, deduction may not exceed
individual’s net income (without regard to this deduction) from the trade or business in
which the tips were earned.
Deduction phases out for taxpayers with modified adjusted gross income over $150,000
($300,000 for joint filers)
Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing
taxpayers. Self-employed individuals in a Specified Service Trade or Business (SSTB)
under section 199A are not eligible. Employees whose employer is in an SSTB also are not
eligible. Taxpayers must:
Include their Social Security number on the return
File jointly if married, to claim the deduction
Reporting: Employers and other payors must file information returns with the IRS (or SSA)
and furnish statements to taxpayers showing certain cash tips received and the
occupation of the tip recipient.
Guidance: By Oct. 2, 2025, the IRS must publish a list of occupations that “customarily and
regularly” received tips on or before Dec. 31, 2024.
The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction
and for employers and payors subject to the new reporting requirements.
New deduction: Effective for 2025 through 2028, individuals who receive qualified
overtime compensation may deduct the pay that exceeds their regular rate of pay (such as
the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor
Standards Act (FLSA) and reported on a Form W-2, Form 1099, or other specified
statement furnished to the individual.
Maximum annual deduction is $12,500 ($25,000 for joint filers).
Deduction phases out for taxpayers with modified adjusted gross income over $150,000
($300,000 for joint filers).
Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing
taxpayers.
Taxpayers must:
Include their Social Security number on the return and
File jointly if married, to claim the deduction.
Reporting: Employers and other payors are required to file information returns with the
IRS (or SSA) and furnish statements to taxpayers showing the total amount of qualified
overtime compensation paid during the year.
Guidance: The IRS will provide transition relief for tax year 2025 for taxpayers claiming the
deduction and for employers and other payors subject to the new reporting requirements.
New deduction: Effective for 2025 through 2028, individuals may deduct interest paid on
a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal
use and meets other eligibility criteria. (Lease payments do not qualify.)
Maximum annual deduction is $10,000.
Deduction phases out for taxpayers with modified adjusted gross income over $100,000
($200,000 for joint filers).
Qualified interest: To qualify for the deduction, the interest must be paid on a loan that
is:
Originated after December 31, 2024
Used to purchase a vehicle originally used by the taxpayer (used vehicles do not qualify)
For a personal use vehicle (not for business or commercial use)
Secured by a lien on the vehicle
If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is
generally eligible for the deduction.
Qualified vehicle: A qualified vehicle is a car, minivan, van, SUV, pick-up truck or
motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has
undergone final assembly in the United States.
To determine if a vehicle had final assembly in the U.S., check one of these:
The information label attached to the vehicle on a dealer's premises
The vehicle identification number (VIN)
The National Highway Traffic Safety Administration (NHTSA) VIN Decoder
Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing
taxpayers. The taxpayer must include the vehicle identification number (VIN) of the
vehicle on the tax return for any year when the deduction is claimed.
Reporting: Lenders or other recipients of qualified interest must file information returns
with the IRS and furnish statements to taxpayers showing the total amount of interest
received during the taxable year.
Guidance: The IRS will provide transition relief for tax year 2025 for interest recipients
subject to the new reporting requirements.
New deduction:Effective for 2025 through 2028, individuals who are age 65 and older
may claim an additional deduction of $6,000. This new deduction is in addition to the
current additional standard deduction for seniors under existing law.
The $6,000 senior deduction is per eligible individual (or $12,000 total for a married couple
where both spouses qualify).
Deduction phases out for taxpayers with modified adjusted gross income over $75,000
($150,000 for joint filers).
Qualified interest:The taxpayer must attain age 65 on or before the last day of the
taxable year.
Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing
taxpayers.
Taxpayers must:
Include the Social Security number of the qualifying individual(s) on the return
File jointly, if married, to claim the deduction