Sarah Gutierrez

Accounting & Tax Specialist

The Internal Revenue Service recently announced the annual inflation adjustments for tax year 2025. Although the adjustments will generally apply to individual tax returns filed in 2026, it’s helpful to see how taxes will change in the future and understand how you may be affected.  Here are some of the highlights of these changes.

Income Rate Brackets

The top tax rate for 2025 remains at 37%. The 37% rate will apply to individual single taxpayers with income greater than $626,350 and married couples filing jointly with income greater than $751,600.

The other rates are:

• 10% for incomes $11,925 or less for filing Single taxpayers or $23,850 or less for Married filing jointly
• 12% for incomes over $11,925 for filing Single taxpayers or over $23,850 for Married filing jointly
• 22% for incomes over $48,475 for filing Single taxpayers or over $96,950 for Married filing jointly
• 24% for incomes over $103,350 for filing Single taxpayers or over $206,700 for Married filing jointly
• 32% for incomes over $197,300 for filing Single taxpayers or over $394,600 for Married filing jointly
• 35% for incomes over $250,525 for filing Single taxpayers or over $501,050 Married filing jointly

Standard Deduction updates

Due to an increase in inflation, the standard deductions will increase as well.

• Single and Separate filers $15,000, up $400 from 2024 tax year
• Head of households $22,500, up $600 from 2024 tax year
• Joint filers $30,000, up $800 from 2024 tax year

Adjustments to Retirement Accounts

The limits on annual contributions for qualified retirement plans have also been updated for 2025, along with the phaseout ranges.

• 401(K) annual limitation for individuals is $23,500, up $500 from 2024. Individuals that are 50 and over can contribute an additional $7,500. For individuals between 60 to 63 years old in 2025 the catch-up contribution limit is $11,250 instead of $7,500.
• Roth IRA annual contribution limit remains at $7,000.
• IRA catch-up contribution limit for individuals 50 years and older remains at $1,000 for 2025.

Deductible IRA phaseout ranges

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions including income limitations.

• Single taxpayers covered by a workplace retirement plan have an income phaseout range between $79,000 and $89,000, up $2,000 from 2024. No deduction is allowable if income exceeds $89,000.
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phaseout range is increased to between $126,000 and $146,000, up $3,000 from 2024.
• An IRA Contributor who is NOT covered by a workplace retirement plan and is married to someone who is covered, the phaseout range increased to between $236,000 and $246,000, up $6,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phaseout range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

Roth IRA income phase out

Singles and head of households increased to between $150,000 and $165,000, up $4,000.

Married Couples Filing Jointly increased to between $236,000 and $246,000, up $6,000.

Annual Exclusion for gifts

Increases to $19,000, up $1,000.

Estate and gift lifetime exemption

Increases to $13.99 million, up from $13.61 million in 2024.

If you have any questions regarding the 2025 inflation adjustments, please don’t hesitate to contact Cray Kaiser today or call us at (630) 953-4900.