IRS releases tax inflation adjustments for tax year 2025

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For tax year 2025, the IRS has issued inflation-adjusted updates to numerous tax provisions, including tax brackets, deductions, and credits. These adjustments will affect returns filed in 2026:

Key Updates:

Standard Deductions:

Single filers and married individuals filing separately: $15,000 (up by $400).

Married couples filing jointly: $30,000 (up by $800).

Heads of households: $22,500 (up by $600).

Income Tax Brackets:

10% rate: Up to $11,925 (single) or $23,850 (married filing jointly).

37% top rate: Above $626,350 (single) or $751,600 (married filing jointly).

Other brackets are also adjusted for inflation.

Earned Income Tax Credit:

Maximum credit for taxpayers with three or more children increases to $8,046 (up from $7,830).

Alternative Minimum Tax (AMT):

Exemption rises to $88,100 for unmarried individuals and $137,000 for married couples filing jointly, with phaseouts at higher income levels.

Gift and Estate Taxes:

Annual gift tax exclusion increases to $19,000 (up from $18,000).

Estate tax exemption increases to $13,990,000 (up from $13,610,000).

Other Adjustments:

Foreign earned income exclusion rises to $130,000.

Adoption credit maximum increases to $17,280.

Health FSA contribution limit grows to $3,300.

These updates reflect the IRS’s annual inflation adjustments and aim to prevent "bracket creep," where inflation pushes taxpayers into higher brackets without a real increase in income.