IRS Releases Tax Inflation Adjustments for 2025

The IRS on Tuesday announced the annual inflation adjustment in 2025 for tax provisions, including employer-sponsored health flexible spending plans, also known as cafeteria plans.

The cafeteria plans, which allow employees to choose between multiple health benefits, will get a $100 bump to $3,300 in 2025 or for the 2026 tax-filing season. For cafeteria plans that permit carryover of unused amounts, the maximum carryover was raised by $20 to $660.

Standard tax deductions also will rise. For single taxpayers and married individuals filing separately for 2025, the standard deduction will be $15,000, a $400 increase. For married couples filing jointly, the deduction is rising to $30,000, an increase of $800. The increases are less than the increases of $750 and $1,500, respectively, for the 2024 tax year.

Inflation has stabilized over the past year after the Federal Reserve’s interest rate hikes took hold. The IRS makes annual inflation adjustments to more than 60 tax provisions depending on inflation, based on Revenue Procedure 2024-40.

Other areas that will increase included:

• For taxpayers with at least three qualifying children, the 2025 maximum earned income tax credit is $8,046, an increase of $216 from 2024;
• The monthly limitation for the qualified transportation fringe benefit and the monthly limitation for qualified parking will rise $10 to $325;
• Medical savings accounts for participants covering only themselves will see a deductible of at least $2,850, $50 more than last year, and no more than $4,300, an increase of $150. The maximum out-of-pocket expense amount rises $200 to $5,700. For family coverage, the deductible is not less than $5,700, a $150 increase, and no more than $8,550, an increase of $200. Out-of-pocket expenses for family coverage is $10,500, an increase of $300 from 2024;
• Estates of decedents who die during 2025 will have an exclusion amount of $13.99 million, an increase of $380,000; and
• The annual exclusion for gifts jumps to $19,000, up by $1,000, from 2024.

Marginal Tax Rates

The marginal tax rates remained the same in terms of percent of payment, though the income threshold for those rates increased across brackets. The end result is:

• 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly);
• 35% for incomes greater than $250,525 ($501,050 for married couples filing jointly);
• 32% for incomes greater than $197,300 ($394,600 for married couples filing jointly);
• 24% for incomes greater than $103,350 ($206,700 for married couples filing jointly);
• 22% for incomes greater than $48,475 ($96,950 for married couples filing jointly);
• 12% for incomes greater than $11,925 ($23,850 for married couples filing jointly); and
• 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).

Some tax provisions that were unchanged include: personal exemptions, which remain at zero after being eliminated in the Tax Cuts and Jobs Act of 2017; no limitations on itemized deductions; and the same level for lifetime learning credits that has been in place since December 31, 2020.