Annual Tax Guide: 2025 Tax Brackets and IRS Updates

Each year, the IRS updates a wide range of provisions, including federal tax brackets, contribution limits, tax deductions and credits. While routine, these tax code updates may sometimes demand a shift in your financial strategy.

The 2026 tax deadline may seem like a long way off, but knowing the limits and phaseouts now will better help you set your financial plan for 2025. From refreshed tax brackets to modified tax laws, here are some of the more noteworthy IRS updates that will apply when you file your 2025 taxes in early 2026.

Income tax brackets

The IRS adjusts federal tax brackets annually to account for inflation. These updates help ensure that when you receive a cost-of-living salary increase, you aren't pushed into a higher tax bracket.

For income earned in 2025, the IRS increased each tax bracket by roughly 2.8%. This increase is slightly higher than the annual rate of inflation, which was 2.6% in October 2024.

Standard deduction

When you file your taxes, you can choose between taking the standard deduction and itemizing. The standard deduction is a fixed dollar amount that's deducted from your taxable income, lowering your overall tax liability.

2025 standard deduction

The standard deduction is based on your filing status and age. If you're under 65, the following standard deduction will apply when you file taxes in 2026:

• Single filers: $15,000
• Married, filing jointly: $30,000
• Head of household: $22,500

Taxpayers ages 65 and older are eligible for an additional deduction of $1,600 per person. For example, married senior citizens who file jointly would receive an additional deduction of $3,200, bringing their total 2025 standard deduction to $33,200. Meanwhile, a senior citizen who's never been married would be eligible for an additional deduction of $2,000. That brings their total 2025 standard deduction to $17,000.

Alternative minimum tax

The alternative minimum tax, or AMT, is designed to ensure that higher-income individuals and corporations pay a minimum level of tax even if they qualify for sizable tax deductions and credits. The AMT kicks in if your taxable income exceeds a certain amount, based on your filing status. The IRS updates these thresholds annually to account for inflation.

Capital gains tax

While short-term gains are taxed as regular income, long-term gains—or any gains realized after 1 year—are taxed at more favorable rates of 0%, 15% or 20%, depending on your total income. For long-term capital gains realized in 2025, the following brackets apply.

Note that these tax rates apply to long-term capital gains only. Assets held less than 1 year are taxed as regular income. Learn more about how capital gains are calculated.

Family tax credits

The IRS offers a variety of tax credits for parents. These credits offer a dollar-for-dollar reduction in the amount of tax you owe. While the Child Tax Credit remains unchanged for 2025, two other family tax breaks have been adjusted for inflation.

2025 Earned Income Tax Credit

The Earned Income Tax Credit, or EITC, helps low- to middle-income families reduce the amount of taxes they owe. The size of this tax credit depends on your filing status, income and the number of qualifying children in your household. Eligibility for the EITC begins to phase out at certain income levels.

2025 adoption tax credit

For prospective parents wondering how to afford adoption costs, the adoption tax credit may offer some relief. This tax credit can be claimed for qualified expenses paid to adopt an eligible child. For 2025, the IRS raised the maximum tax credit to $17,280—a 2.8% increase from 2024.

Retirement savings

Each year, the IRS updates contribution limits for a wide range of retirement savings plans. In 2025, a few noteworthy changes stemming from the SECURE 2.0 Act will also go into effect.

2025 contribution limits

The annual contribution limit for 401(k) and 403(b) plans, governmental 457 plans and the federal government's Thrift Savings Plan has been increased to $23,500 for 2025.

Other retirement plan contribution limits for 2025 are as follows. Note that these 2025 contribution limits don't factor in catch-up contributions for those aged 50 and older.

• Roth and traditional IRAs: The contribution limit for Roth and traditional IRAs remains unchanged from the previous year. You can contribute up to $7,000 in 2025, not including catch-up contributions.
• SEP IRAs: The 2025 contribution limit for SEP IRAs has been increased to $70,000.
• SIMPLE IRAs and SIMPLE 401(k)s: Individuals can contribute up to $16,500 to a SIMPLE IRA or SIMPLE 401(k) in 2025.
• Solo 401(k)s: In 2025, you can contribute up to $23,500 to a solo 401(k) as an employee, plus an additional 25% of compensation as an employer.

Catch-up contributions in 2025

If you're 50 or older, the IRS allows you to make an additional contribution—known as a catch-up contribution—to help boost your retirement savings.

• For ages 50 to 59 and 64 and older: In 2025, you can contribute an additional $7,500 to most employer-sponsored plans, including 401(k) and 403(b) plans. For Roth and traditional IRAs, you can contribute an additional $1,000 this year.
• For ages 60 to 63: Starting in 2025, active 401(k) participants aged 60 through 63 can make increased catch-up contributions of up to $11,250 to most workplace plans. For Roth and traditional IRAs, the catch-up contribution limit is still $1,000.

Estate tax

With the 2017 Tax Cuts and Jobs Act, or TCJA, scheduled to expire after 2025, new tax laws may usher in significant changes to gift and estate tax limits. While the IRS has made minor adjustments to estate tax exemptions for 2025, it may be an important time for many taxpayers to evaluate their options.

2025 estate tax exemptions

The federal estate tax exemption has been increased for 2025. As a result, any individual estate valued at $13.99 million or less in 2025 will be exempt from federal taxes. Likewise, the exemption for married couples has increased to $27.98 million.

Note that estate taxes only apply to the value of the estate that exceeds the exemption. In other words, beneficiaries who inherit an estate valued at $14.2 million would only pay taxes on $210,000 in 2025.

2025 gift tax exclusion

The IRS has increased the gift tax exclusion for 2025. This year, an individual can give up to $19,000 per recipient tax-free. This means that a married couple can transfer up to $38,000 in present interest gifts to each of their beneficiaries in 2025 without triggering the gift tax.

As in previous years, married couples can transfer unlimited amounts to each other. However, if one spouse is a non-US citizen, that amount is capped at $190,000.

Other IRS updates for 2025

Other notable tax updates for 2025 include the following changes.

QCD limits

The annual limit on qualified charitable distributions, or QCDs, has been increased to $108,000 for 2025, as long as those donations are made directly to a charity. The annual limit on QCDs used to fund a gift annuity or charitable remainder trust will increase to $54,000.

HSA plans

The annual contribution limit for health savings accounts, or HSAs, has been increased to $4,300 for individual coverage and $8,550 for family coverage. Individuals who are 55 and older may contribute an additional $1,000.

Foreign earned-income exclusion

In 2025, the foreign earned-income exclusion has been raised to $130,000.

Qualified Business Income deduction

In 2025, the Qualified Business Income, or QBI, deduction begins to phase out for taxpayers with income above $197,300, or $394,600 for those married and filing jointly.

The bottom line

While routine, these IRS updates may impact not only how much tax you owe but also how you plan for the future. Staying on top of tax code changes and new tax laws at the start of each year will enable you to modify your financial strategy and ensure you're well prepared for filing season.

Most taxpayers consult with a tax specialist. They can help you navigate any potential IRS updates and make sure you're taking steps to minimize your tax burden throughout the year.