As we approach tax season, inflation has triggered several notable adjustments that will impact individual taxpayers, families, and estates alike. Here’s a rundown of these updates for the 2025 tax year, along with some expert insights on what these changes could mean for you.

 

Standard Deduction Increases

 

One of the first changes impacting most taxpayers is the bump in the standard deduction. This is the amount taxpayers can claim to reduce their taxable income if they don’t itemize:

• Single filers and married individuals filing separately will have a standard deduction of $15,000, up by $400 from 2024.
• Married couples filing jointly can now claim a deduction of $30,000, an $800 increase.
• Heads of households will see a deduction of $22,500, a $600 boost.

 

Tammy Ordway, Director of Entrepreneurial Services for Faw Casson, remarks, “For married individuals in particular, the bump to $30,000 means even fewer people are likely to itemize. The threshold makes a big difference for families who might otherwise not qualify for itemizing deductions.”

 

Tax Brackets and Marginal Rates

 

The tax brackets for 2025 have adjusted for inflation, though the top rate remains 37%. Many taxpayers have questions about this:

 

“We often hear, ‘If I make over that amount, is all my income taxed at that top rate?’” explains Brian Stetina, Director of Taxation. “But it’s actually a graduated system, meaning only income above each threshold is taxed at the corresponding rate.”

 

Here’s where each rate kicks in:

• 10% for incomes up to $11,925 (or $23,850 for married couples filing jointly).
• 12% for incomes over $11,925 (or $23,850 for married couples).
• 22% for incomes over $48,475 (or $96,950 for married couples).
• 24% for incomes over $103,350 (or $206,700 for married couples).
• 32% for incomes over $197,300 (or $394,600 for married couples).
• 35% for incomes over $250,525 (or $501,050 for married couples).
• 37% for incomes over $626,350 (or $751,600 for married couples).

 

Social Security Wage Base Adjustment

 

For those paying into Social Security, the wage base has risen to $176,100. This means you’ll pay Social Security tax on income up to that limit at a rate of 6.2%. “Anything over that does not pay Social Security, but Medicare taxes still apply,” states Brian Stetina. This annual adjustment reflects inflation and typically leads to a slight increase in Social Security taxes for most workers.

 

Section 179 Deduction for Businesses

 

Small businesses should take note of the increase to the Section 179 deduction limit:

• Businesses can expense up to $1,250,000 in new equipment purchases, with a phase-out threshold of $3,130,000.

 

 “They can invest in new equipment and benefit from an immediate tax deduction rather than spreading it over years if they so choose.”, Stetina notes.

 

Gift and Estate Tax Adjustments

 

For those considering wealth transfers, the gift tax exclusion has risen:

• You can now give up to $19,000 per individual without triggering any reporting requirements, up from $18,000. “This increase allows for slightly more tax-free giving,” explains a tax professional. “It’s a small but meaningful adjustment for families thinking about wealth transfers or assisting family members.”

 

The estate tax exclusion has also climbed to $13,990,000 for 2025, making it possible for estates under this amount to avoid federal estate tax altogether.

 

Earned Income Tax Credit (EITC)

 

For working families, the maximum Earned Income Tax Credit (EITC) for families with three or more children has risen to $8,046. This credit aims to support lower-income families, with the exact credit depending on income level, family size, and filing status.

 

Other Noteworthy Adjustments

 

• Qualified Transportation Fringe Benefit and Parking: The monthly limit increases to $325, a small yet meaningful adjustment for employees who benefit from employer-provided transportation assistance.
• Health Flexible Spending Accounts (FSA): The maximum contribution rises to $3,300 for 2025, along with a carryover increase to $660.
• Medical Savings Accounts (MSA): The deductible and out-of-pocket limits for both self-only and family coverage plans have risen slightly. The new limits provide more flexibility for healthcare expenses.

 

Items That Remain Unchanged

 

While many tax items adjust for inflation, some remain static for 2025:

• Personal Exemptions: Still at zero, as set by the Tax Cuts and Jobs Act of 2017.
• Itemized Deduction Limitations: These remain eliminated.
• Lifetime Learning Credit: The phase-out thresholds for this education credit have not been adjusted since 2020.

 

This annual round of inflation adjustments is aimed at keeping the tax code aligned with rising costs. Whether it’s maximizing deductions, planning for higher Social Security contributions, or adjusting gift and estate strategies, these changes offer some increased flexibility—and emphasize the importance of staying informed.