The IRS rings in each new year by updating tax provisions to keep pace with inflation. These adjustments protect the real value of your tax benefits, ensuring that inflation doesn’t quietly chip away at your financial position. Understanding these changes helps you make smarter financial decisions, optimize your tax strategy, and build a stronger retirement nest egg for 2025 and the years ahead.
How the IRS Calculates Annual Tax Adjustments
The IRS calibrates its tax adjustments using precise measures of economic inflation. Prior to 2018, these calculations relied on the Consumer Price Index for Urban Consumers (CPI-U).
However, the Tax Cuts and Jobs Act of 2017 shifted to a more nuanced measure—the Chained Consumer Price Index (C-CPI). This index captures how people adapt their spending when prices rise, typically leading to more modest adjustments in tax brackets and thresholds.
These carefully measured updates prevent inflation from artificially pushing you into higher tax brackets or diminishing the value of your deductions and credits. The goal is simple: maintain a tax system that fairly reflects the real economy.
2025 Federal Income Tax Brackets and Rates
The seven-tier federal tax system remains in place for 2025, with rates spanning from 10% to 37%. The highest rate of 37% kicks in at $626,350 for single filers and $751,600 for married couples filing jointly.
2025 Standard Deduction Amounts
The standard deduction rises in 2025, reaching $15,000 for single filers and $30,000 for married couples filing jointly. Additionally, heads of household can claim $22,500. Meanwhile, taxpayers 65 and older get an extra boost—$2,000 more for single filers and $1,600 for joint filers.
Alternative Minimum Tax (AMT) in 2025
The Alternative Minimum Tax (AMT) acts as a backstop in the tax code, ensuring high-income earners pay their fair share even when claiming substantial deductions. While this parallel tax system rarely affects middle-income taxpayers, it’s important to understand the 2025 thresholds:
- The AMT exemption shields the first $88,100 for single filers and $137,000 for joint filers from this special calculation.
- Income above $239,100 ($119,550 for married filing separately) faces a 28% AMT rate.
- These exemptions start disappearing when income reaches $626,350 for singles and $1,252,700 for joint filers.
Child Tax Credit in 2025
The Child Tax Credit holds steady at $2,000 per qualifying child in 2025, as this amount isn’t tied to inflation. However, the refundable portion—the amount you can receive even if you owe no tax—rises to $1,700.
2025 Capital Gains Tax Brackets
Long-term capital gains tax rates in 2025 follow three tiers:
- 0% for those earning up to $48,350
- 15% for incomes between $48,351 and $533,400
- 20% for earnings above $533,400.
Qualified Business Income Deduction in 2025
Business owners with pass-through income can claim a valuable 20% deduction, thanks to the Tax Cuts and Jobs Act. For 2025, this benefit starts phasing out when income reaches $197,300 for individuals and $394,600 for joint filers. The final deduction amount depends on your type of business and total earnings.
2025 Annual Gift Tax Exclusion
The tax-free gift allowance rises to $19,000 per person in 2025, meaning you can give that amount to as many individuals as you wish without tax consequences. For gifts to non-citizen spouses, the limit increases to $190,000. Both increases from 2024 help offset inflation’s impact on wealth transfer strategies.
2025 Retirement & Health Savings Account Contribution Limits
The following annual tax adjustments for 2025 reflect cost-of-living increases and provide taxpayers with expanded opportunities to save for retirement and healthcare expenses.
401(k) and 403(b) Plans
Workers can contribute up to $23,500 to their 401(k) or 403(b) retirement plans in 2025, a $500 increase from 2024. Meanwhile, those 50 and older can add another $7,500, bringing their total limit to $31,000.
New SECURE 2.0 Super 401(k) Catch-Up Contributions for Ages 60-63
Starting in 2025, individuals aged 60 to 63 will benefit from a special catch-up contribution opportunity. This allows them to contribute the greater of $10,000 or 150% of the 2024 catch-up limit, adjusted annually for inflation.
For the 2025 tax year, this translates to a maximum catch-up contribution of $11,250. When combined with the standard $23,500 contribution limit, these participants can contribute up to a total of $34,750, significantly boosting their retirement savings potential.
Traditional and Roth IRAs
In 2025, the annual contribution limit for traditional and Roth IRAs remains steady at $7,000, unchanged from 2024. Taxpayers aged 50 and older can still take advantage of an additional $1,000 catch-up contribution, allowing for a total contribution limit of $8,000.
However, it’s essential to note that income limits apply to Roth IRA contributions. For 2025, single and head-of-household filers with a modified adjusted gross income (MAGI) under $150,000 (up from $146,000 in 2024) can make the full contribution. For married couples filing jointly, the full contribution is available with a MAGI under $236,000.
SIMPLE IRAs
In 2025, the contribution limit for SIMPLE IRA plans rises to $16,500, an increase from $16,000 in 2024. Under the SECURE Act 2.0, certain eligible SIMPLE plan participants may contribute up to $17,600, offering additional opportunities for retirement savings.
For participants aged 50 and older, the standard catch-up contribution remains at $3,500. However, for qualifying plans, this catch-up limit increases to $3,850, providing even more flexibility for older savers to maximize their retirement contributions.
Health Savings Accounts (HSAs)
Individuals enrolled in a qualifying High Deductible Health Plan (HDHP) can contribute to a Health Savings Account (HSA) to save for eligible medical expenses in a tax-advantaged way. For 2025, the IRS has updated the HDHP requirements, increasing the minimum annual deductible to $1,650 for individual coverage (up from $1,600 in 2024) and to $3,300 for family coverage (up from $3,200).
2025 HSA Contribution Limits:
- Individual coverage: Increased to $4,300 (up from $4,150 in 2024).
- Family coverage: Increased to $8,550 (up from $8,300 in 2024).
- Catch-up contribution (for individuals aged 55 and older): Remains at $1,000.
TrueNorth Wealth Is Here to Help
Keeping up with the latest tax thresholds and rates is essential for making informed financial decisions and staying ahead throughout the year. Proactive planning and partnering with a knowledgeable financial advisor can make all the difference.
At TrueNorth Wealth, our team of fiduciary CFP® professionals is here to help you navigate annual tax updates with confidence and implement strategies tailored to your long-term goals. We’ll work with you to design a comprehensive financial plan that not only minimizes your tax burden but also uncovers opportunities to maximize your wealth.
TrueNorth Wealth is among the top Wealth Management firms in Utah and Idaho, with offices in Salt Lake City, Logan, St. George, and Boise. At TrueNorth Wealth, we focus on helping our clients build long-term wealth while maximizing the enjoyment they receive from their money. We do this by pairing our clients with a dedicated CFP® professional backed by an incredible team.
For our team at TrueNorth, it’s about so much more than money. It’s about serving families all across Utah and helping them achieve freedom and flexibility in their lives. To learn more or schedule a free strategy session, visit our website at TrueNorth Wealth or call (801) 316-1875.