The IRS has announced big tax changes for 2025 — here’s what they are and how they could impact you

IRS announces big changes for 2025

The IRS just dropped a raft of changes, big and small, to the U.S. tax code that could shift how much you owe — or save — in 2025. From bigger deductions to higher limits on health-related savings accounts, the changes reflect the government’s continued fight to curb inflation and resulting financial strain.

The adjustments, announced by the IRS in late October, are designed to bring some relief to taxpayers through increases in standard deductions, tax bracket thresholds, and other key areas. Some of the changes are related to adoption, commuting, and earning income from outside the country.

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In high-cost cities, the transportation benefit hike may bring some relief, while changes to medical savings options give families more flexibility to manage health-care costs. If you’re in a higher tax bracket or plan to leave an inheritance, it’s worth paying attention to the alternate minimum tax (AMT) and estate tax changes. The standard deduction increase and the earned income tax credit boost will directly benefit middle-income families, while commuters and people living or working abroad will also find things to like.

In all, the IRS announced more than 60 changes for the upcoming tax year. Below, we identify the nine of the biggest. How much they’ll impact you depends on your income, financial health, and tax strategy.

As with any tax updates, it’s smart to consult a tax professional on how to make these changes work for you. And it’s important to remember these changes take effect in the 2025 tax year — they won’t do you much good when it’s time to file your returns this coming spring.

You deserve a break

Here’s one change nearly all American tax filers will get to enjoy: the standard deduction is going up. For the 90% or so who don’t choose to itemize their deductions each year, that means a little extra cash to help offset the persistent effects of inflation.

Single taxpayers can now deduct $15,000, a $400 increase from 2024. Married couples filing jointly get a bump to $30,000, while heads of households can claim $22,500. This increase could mean paying less in taxes, especially for those who don’t itemize.

Middle-income earners will be happy to hear that the Alternative Minimum Tax exemption, designed to ensure that high earners pay a minimum tax, has increased to $88,100 for individuals and $137,000 for joint filers.

It’s a modest increase from the previous tax year’s minimum of $85,700, but this adjustment could result in some middle-income earners no longer being subject to the AMT, which could result in tax savings for them.

That might not be the case if you got a raise, but the good news is that the IRS has prepared for that as well. For 2025, the IRS has adjusted income tax brackets to accommodate rising wages. The 37% top tax rate applies to singles earning over $626,350 and married couples earning over $751,600 (an increase from $609,350 the tax year before.)

And other bracket adjustments this year could result in some households falling into lower tax brackets, potentially lowering their tax bills.

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Work hard, keep more

Are you one of the millions of American workers who are back to commuting to the office a few days a week? For those who receive employer-sponsored benefits, the IRS raised the monthly allowance for transportation and parking to $325. This may be especially helpful in urban areas where transportation costs are steep.

Employees can also now contribute up to $3,300 to health flexible savings accounts, with a carryover maximum of $660. This increase allows workers to set aside pre-tax money for medical expenses, helping ease the burden of health care costs.

And as for those who’ve sought a new life outside of the U.S., Americans working in other countries can exclude up to $130,000 of foreign-earned income in 2025, up from $126,500. This adjustment helps U.S. citizens abroad by minimizing their taxable income and alleviating double taxation.

Family-friendly policies

In 2025, the maximum earned income tax credit for low- to moderate-income families with three or more children rises to $8,046, a slight increase from this year. This credit helps support working families, especially as living costs rise, and provides a valuable income boost for qualifying households.

Higher earners, on the other hand, will now be able to pass on more of their money to family, friends and the causes they believe in as the estate tax exclusion jumps to $13.99 million for estates in 2025.

This change could significantly impact high net worth individuals and estate planning, potentially protecting more assets from estate taxes.

As for those looking to start their families, the IRS has introduced a new rule for parents. The maximum adoption credit increased to $17,280, up from $16,810. For adoptive parents, this credit covers qualified expenses, reducing the financial burden associated with adoption.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.