The IRS releases inflation-adjusted tax brackets every year so people aren’t pushed into higher tax brackets without any actual increase in their income. Similar to previous years, there will be seven income tax brackets that will remain unchanged throughout 2025.
If you’re due to file tax returns in the coming year, you must be informed of the recent changes the IRS released. This article lists everything you need to know about it.
Reduction in Tax Rates for Single Filers
You must check the applicable tax rates if you’ll be paying taxes as a single filer on the income earned in 2024. Individual tax rates and thresholds have significantly reduced after implementing the 2017 Tax Cuts and Jobs Act (TCJA).
For example, the 2024 threshold for single taxpayers is $0-$11,600 for those in the 10% tax bracket. Those in the 12% tax bracket will have a threshold of $11,600-$47,150, the 22% tax bracket will enjoy a threshold of $47,150-$100,525, etc.
Income Tax Rates for Joint Filers
The TCJA enactment has resulted in a tax rate reduction and an income threshold increase for joint filers over the years.
The 2024 threshold for married taxpayers (joint filers) is set at $0-$23,200 for those in the 10% tax bracket. Those earning $23,200-$94-300 will attract a 12% tax rate, whereas joint filers earning $94,300-$201,050 will attract a tax rate of 22%. Those earning above $731,200 will fall in the highest tax bracket of 37%.
Income Threshold for Married Filing Separately
If you’re married but file your taxes separately, then your income threshold and applicable tax rate will be similar to single filers. For example, if you earn in the $0-$11,600 range, you’ll pay taxes at 10%. A 12% tax rate will apply if your income threshold is $11,601-$47,150. You can check other details based on your income and plan your tax filing accordingly.
2025 Tax Brackets Released
While most individuals are planning their 2025 tax returns for income earned in 2024, the IRS has released tax brackets and rates for 2025 income that you’ll pay taxes for in 2026. While the tax brackets will remain the same as of 2024, Americans can see an increase in income threshold to reduce the taxation burden. Single filers earning $0-$11,925 will attract a 10% tax rate.
This threshold was $11,600 in 2024, marking an increase of $325. Similarly, the income threshold has been increased by $650 for married filing jointly or qualified widows and $450 for head of household. This increase in the threshold will make people fall in the first tax bracket of the 10% tax rate.
Standard Deductions
The IRS has increased the amounts previously set for standard deductions to bring relief to taxpayers. In 2025, standard deductions will increase by $400 to $15,000 for married filing separately and single filers. The standard deductions for married couples filing tax returns jointly can enjoy an increased standard deduction of up to $30,000.
Alternative Minimum Tax (AMT) and Earned Income Tax Credits
The AMT is set to increase from $85,700 to $88,100 for unmarried filers, while it will increase to $137,000 for married taxpayers, which is $3,700 more than the previous year. Taxpayers can also benefit from an increase in earned income tax credits by $216.
Increased Contribution to Retirement Plans
The IRS has increased the contribution cap so individuals with a 401(k) account can contribute $500 more. Although the contribution cap is increased, limits for individual retirement accounts remain the same. The catch-up contribution limit also remains unchanged, but starting in 2025, people aged 60 to 63 can make additional contributions of up to $11,250. This limit is $3,750 higher than other catch-up contributions, which is significant.
Change in Capital Gains Tax Rate
Individuals earning $48,350 or less and married joint filers earning $96,700 will be taxed at 0% for long-term capital gains in 2025. However, individuals earning more than the above limit but less than $533,400 will be taxed at 15% for the same. This limit is fixed at $600,050 for married joint filers.
Increase in Tax-free Gifting and Estate Tax
The IRS has increased the annual individual tax-free gifting limit for 2025. Previously, taxpayers were allowed to give tax-free gifts for each beneficiary up to a limit of $18,000 in 2024. This limit has been increased by $1000 to $19,000 in 2025. The estate tax threshold will also increase to $13.99 million from the existing $13.61 million in 2025.
