The Internal Revenue Service (IRS) revealed an increase in the estate and gift tax exemption for the year 2025.
The “basic exclusion amount” will rise to $13.99 million per individual in 2025, up from $13.61 million in 2024, according to the agency. These exemptions facilitate tax-free transfers both during an individual’s lifetime and upon death.
Additionally, the IRS has adjusted various other provisions, including federal income tax brackets, long-term capital gains tax brackets, and eligibility for the earned income tax credit, among others.
Key Changes for Tax Year 2025
The adjustments for the tax year 2025 will generally affect income tax returns filed starting in the 2026 tax season.
🔎 The following dollar amounts for tax year 2025 are particularly relevant for many taxpayers:
Standard Deductions
For single taxpayers and married individuals filing separately, the standard deduction will increase to $15,000 in 2025, reflecting a $400 rise from 2024. For married couples filing jointly, the standard deduction will be $30,000, an increase of $800 from the previous year.
Heads of household will see their standard deduction set at $22,500 for 2025, which is $600 more than in 2024.
Marginal Rates
The top tax rate for 2025 remains at 37% for single taxpayers earning over $626,350 ($751,600 for married couples filing jointly).
🔎 The other tax rates are as follows:
- 35% for income exceeding $250,525 ($501,050 for married couples filing jointly).
- 32% for income over $197,300 ($394,600 for married couples filing jointly).
- 24% for income surpassing $103,350 ($206,700 for married couples filing jointly).
- 22% for income over $48,475 ($96,950 for married couples filing jointly).
- 12% for income exceeding $11,925 ($23,850 for married couples filing jointly).
- 10% for income of $11,925 or less ($23,850 or less for married couples filing jointly).
Alternative Minimum Tax Exemption Amounts
For the tax year 2025, the exemption for single filers will rise to $88,100, while for married individuals filing separately, it will be $68,650, with a phase-out beginning at $626,350.
Married couples filing jointly will see their exemption amount increase to $137,000, with a phase-out starting at $1,252,700.
Earned Income Tax Credits
For taxpayers qualifying with three or more eligible children, the maximum earned income tax credit for the tax year 2025 will be $8,046, an increase from $7,830 in 2024.
The revenue procedure includes a table detailing the maximum EITC amounts for other categories, along with income thresholds and phase-out details.
Qualified Transportation Fringe Benefit
In 2025, the monthly limit for the qualified transportation fringe benefit and qualified parking will be raised to $325, up from $315 in 2024.
Health Flexible Spending Cafeteria Plans
For tax years starting in 2025, the limit on employee salary reductions for contributions to health flexible spending accounts will increase to $3,300, compared to $3,200 in 2024.
For cafeteria plans that permit the carryover of unused amounts, the maximum carryover will rise to $660, up from $640 in the previous fiscal year.
Medical Savings Accounts
Starting in tax year 2025, individuals with a plan that only covers out-of-pocket expenses must have an annual deductible of at least $2,850, which is a $50 increase from the prior year, and not exceeding $4,300, an increase of $150 from the previous tax year.
The maximum out-of-pocket expense will increase to $5,700, up from $5,550 in 2024.
For family coverage in 2025, the annual deductible will be no less than $5,700, up from $5,550 in 2024, with a maximum limit of $8,550, reflecting a $200 increase from the previous year.
The out-of-pocket limit for family coverage will be set at $10,500 for the tax year 2025, an increase from $10,200 in 2024.
Foreign Income Exclusion
For the tax year 2025, the foreign earned income exclusion will rise to $130,000, an increase from $126,500 in 2024.
You may also read: IRS Reveals Updated Federal Income Tax Brackets for 2025
Estate Tax Credits
The basic exclusion amount for estates of individuals who pass away in 2025 will be $13,990,000, up from $13,610,000 for those who died in 2024.
The annual gift exclusion will increase to $19,000 for the calendar year 2025, compared to $18,000 for 2024.
Adoption Credits
In 2025, the maximum credit available for the adoption of a special needs child will be the amount of qualified adoption expenses, capped at $17,280, an increase from $16,810 in 2024.
No Changes for Tax Year 2025
Certain items that were previously indexed for inflation will not see adjustments this year.
Personal Exemptions
The personal exemptions for 2025 will remain at 0, consistent with 2024, following the elimination of the personal exemption under the Tax Cuts and Jobs Act of 2017.
Itemized Deductions
There will be no limitations on itemized deductions for the tax year 2025, mirroring the situation in 2024 and prior years, as the limitation was removed by the Tax Cuts and Jobs Act of 2017.
Lifetime Learning Credits
The threshold for modified adjusted gross income that affects the reduction of the Lifetime Learning Credit, as outlined in Sec. 25A(d)(1) of the Internal Revenue Code, will not be adjusted for inflation for tax years starting after December 31, 2020.
The credit phases out for taxpayers with modified adjusted gross income exceeding $80,000 ($160,000 for joint filers).
🛑 After 2025, the significant estate and gift tax exemption established by former President Donald Trump will lapse unless Congress intervenes. Should this provision expire, the exclusion will revert to the levels set in 2017, adjusted for inflation.
The Tax Cuts and Jobs Act increased the exemption to $11.18 million in 2018, according to the Tax Policy Center.
✅ And finally, remember that at Wave Tax we keep up to date with everything related to the ever-changing world of tax planning.
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