Tax Changes for 2025: The Federal Tax Bracket Adjustments You Need To Know About

This week, the IRS announced a slew of tax changes coming to the federal tax brackets in 2025, along with updates about deduction rates and other popular tax incentives. With 2024 rapidly coming to an end, many Americans are turning their attention to the impending tax season, especially in the wake of these recent updates.

So, if you’re worried about how today’s economic stress will impact your taxes this year, don’t panic. IRS Fresh Start is here to help you understand what these new tax changes mean and how to prepare for your federal income taxes in advance.

1. The IRS Is Adjusting For Inflation

Considering how inflation has impacted nearly every aspect of our financial lives, it’s no surprise that the IRS has decided to adjust for inflation. In this announcement, the IRS shared that the income threshold for all federal income tax brackets will be raised, especially at the highest rate of 37%.

What does this mean, exactly?

Unless your income increases significantly in the next 12 months, you’ll still remain in the same tax bracket, even with current inflation rates.

2. Standard Deduction Rates Will Increase

One silver lining to tax changes for 2025 is higher deduction rates, which will increase to $30,000 for married couples and $15,000 for single individuals. These changes are another example of how the IRS plans to combat inflation and provide relief for families and individuals alike.

3. Healthcare Contributions Will Be Limited

Healthcare FSA contributions will also increase for 2025, but not by much. The new limits will allow employees to contribute up to $3,300 of income to their healthcare plan, a mere $100 increase from the previous year. These amounts are not subject to federal income tax, but rising healthcare costs could make these contributions seem somewhat limited.

4. Retirement Contribution Caps Will Raise

If preparing for retirement is a high priority, the new tax changes will allow you to contribute more to your 401(k) than in previous tax years. Updated tax changes in 2025 allow individuals to contribute $500 more to their retirement accounts throughout the year.

But there’s a catch.

Individual Retirement Account (IRA) contributions will not be increased from previous years, which means only individuals with a 401(k) plan will benefit from the upcoming tax changes.

5. More Exemptions and Tax Credits Are Expected

Along with these key updates, there are a slew of smaller changes coming to many exemptions and tax credits that Americans depend on to keep their costs low.

Here are a few updates at a glance:

• Long-term capital gains brackets will increase.

• Estate tax exemption rates will rise.

• Eligibility for earned income tax credits will adjust for inflation.

• Gift tax exemptions will increase.

As the economy adjusts to increased costs, the IRS strives to update federal tax brackets to match. For more insight on how these changes will impact how much you might owe, request help from our team today.