The Internal Revenue Service (IRS) has announced several key adjustments for the 2025 tax year, reflecting annual inflation and legislative changes. Here's an overview of the most significant updates affecting federal income tax returns:
 
1. Standard Deduction Increase
 
Single Filers: The standard deduction rises to $15,000, up from $14,600 in 2024.
 
Married Filing Jointly: Increases to $30,000 from $29,200.
 
Head of Household: Now $22,500, up from $21,900.
 
 
2. Adjusted Income Tax Brackets
 
Tax brackets have been modified to account for inflation. Notably:
 
The top 37% rate applies to incomes over $626,350 for single filers and $751,600 for married couples filing jointly, up from $609,350 and $731,200, respectively, in 2024.
 
 
3. Retirement Contribution Limits
 
401(k), 403 (b) and 457 Plans: Contribution limits increase to $23,500 from $23,000.
 
Catch-Up Contributions: Normally $7,500 if over 49, but for individuals aged 60 to 63, a new catch-up contribution limit of $11,250 is introduced, $3,750 higher than the standard catch-up amount.
 
IRAs  $7,000, plus $1,000 catch-up if over 49
 
Simple IRAs: Contribution limit increased to $16,500, plus $3,500 catch-up if over 49. (Increased by 10% for employers with fewer than 25 employees). Those age 60-63 can save $5,250 as a catch-up contribution
 
SEP IRAs: Contribution limit increased to $70,000
 
 
4. Earned Income Tax Credit (EITC)
 
The maximum EITC amount has been adjusted for inflation, providing increased benefits to eligible taxpayers.
 
 
5. Annual Gift Tax Exclusion
 
The exclusion amount rises to $19,000 per recipient, up from $18,000 in 2024, allowing individuals to gift more without incurring tax liabilities.
 
 
 
 
6. Estate Tax Exemption
 
The lifetime estate exemption increases to nearly $14 million, up from $13.61 million in 2024, enabling larger transfers of wealth without estate tax implications.
 
 
7. Child Tax Credit
 
The refundable portion of the Child Tax Credit remains at $1,700 for 2025, unchanged from 2024.
 
 
8. Mileage Rates
 
Business Use: 70 cents per mile, an increase of 3 cents from 2024.
 
Medical Purposes: 21 cents per mile, unchanged from 2024.
 
Moving Purposes (for qualified active-duty members of the Armed Forces): 21 cents per mile, unchanged from 2024.
 
Charitable Organizations: 14 cents per mile, unchanged from 2024 (this rate is set by statute).
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