The IRS has announced several changes for the 2025 tax year, which will impact tax returns filed in 2026. Here’s a breakdown of the updates:
1. Standard Deduction Increases
• Single filers: Standard deduction raised to $15,000.
• Married couples filing jointly: Raised to $30,000.
• Heads of household: Increased to $22,500.
These adjustments aim to keep pace with inflation, offering taxpayers more initial income that is not taxed.
2. Updated Tax Brackets
• The IRS adjusted income tax brackets, shifting them up by approximately 2.8%. The highest tax rate of 37% now applies to:
• Single filers with incomes over $626,350.
• Married couples filing jointly with incomes over $751,600.
Other tax brackets have similar upward adjustments:
• 35%: Income above $250,525 for single filers, $501,050 for joint filers.
• 32%: Income above $197,300 (single) and $394,600 (joint).
• 24%: Income above $103,350 (single) and $206,700 (joint).
• 22%: Income above $48,475 (single) and $96,950 (joint).
• 12%: Income above $11,925 (single) and $23,850 (joint).
• 10%: For incomes below these amounts.
This adjustment means that a bit more income falls under lower tax rates before moving into the higher brackets, which could mean tax savings.
3. Alternative Minimum Tax (AMT) Adjustments
• The AMT exemption is now set at $88,100 for single filers and $137,050 for joint filers, with the exemption phasing out at higher income levels. This ensures more middle-income taxpayers avoid the AMT.
4. Earned Income Tax Credit (EITC) Increases
• EITC thresholds have been raised, providing slightly larger credits for qualifying income levels. This adjustment ensures that low- to moderate-income taxpayers can receive additional tax relief if eligible.
These updates are designed to adjust for inflation and ensure tax thresholds stay aligned with changing economic conditions. For further details, check the IRS website as well as tax planning tools or speak with a tax professional.