January brings the start of the 2025 tax season, highlighting significant changes affecting whether taxpayers receive refunds or face substantial payments. Tax brackets, which dictate how much tax one pays on incremental income, are experiencing notable adjustments starting this year.
Tax brackets consist of layers where taxpayers pay varying rates on increasing portions of their income. The Internal Revenue Service (IRS) organizes these brackets primarily by income levels and filing status—such as single or married filing jointly. For 2024, there are seven tax brackets, which range between 10% and 37%. According to the tax preparation service TurboTax, here are the specifics:
- 37% for incomes over $609,350 (married couples filing jointly: $731,200)
- 35% for incomes over $243,725 ($487,450 for married couples filing jointly)
- 32% for incomes over $191,950 ($383,900 for married couples filing jointly)
- 24% for incomes over $100,525 ($201,050 for married couples filing jointly)
- 22% for incomes over $47,150 ($94,300 for married couples filing jointly)
- 12% for incomes over $11,600 ($23,200 for married couples filing jointly)
- 10% for incomes up to $11,600 ($23,200 for married couples filing jointly)
While the percentages remain unchanged for 2025, the income thresholds will be higher:
- 37% for incomes over $626,350 (married couples filing jointly: $751,600)
- 35% for incomes over $250,525 ($501,050 for married couples filing jointly)
- 32% for incomes over $197,300 ($394,600 for married couples filing jointly)
- 24% for incomes over $103,350 ($206,700 for married couples filing jointly)
- 22% for incomes over $48,475 ($96,950 for married couples filing jointly)
- 12% for incomes over $11,925 ($23,850 for married couples filing jointly)
- 10% for incomes of $11,925 or less ($23,850 or less for married couples filing jointly)
Beyond just tax brackets, the Earned Income Tax Credit (EITC) will provide greater relief for working families. The maximum EITC amount is climbing to $7,830 for those with three or more qualifying children, up from $7,430 last year. Alongside this, the monthly limits for transportation benefits and parking have also increased. Specifically, for transportation fringe benefits, the new monthly limit is set to $315, marking a $15 rise from 2023.
There are more adjustments for flexible health spending as well. The limit for employee salary reductions for health flexible spending arrangements will be raised to $3,200. For cafeteria plans, the maximum carryover amount has increased to $640, adding $30 from the previous year.
Another significant change involves the foreign-earned income exclusion, which has risen to $126,500, compared to $120,000 last year. This adjustment is pivotal for American citizens working abroad who wish to minimize their taxable income.
On estate planning and gifts, the basic exclusion amount for those who passed away during 2024 will increase to $13,610,000—a substantial rise from the $12,920,000 threshold observed last year. Also, the annual exclusion for gifts will experience growth, rising to $18,000, up from $17,000, allowing individuals to give more tax-free.
All these updates come as the national deadline to file taxes remains April 15, based on IRS regulations, but tax filers can seek extensions until October 15, allowing for more time to navigate these changes.
With these adjustments outlined, taxpayers should remain vigilant. Changes to income thresholds can significantly impact tax liabilities, and leveraging available credits and deductions can be pivotal for financial planning. The upcoming 2024 tax season offers both new opportunities and challenges as taxpayers adjust to these financial landscapes.
