Top Ten Tax Code Changes for Individuals Expected in 2025

December 31, 2024
2025 tax code changes

Upcoming and Immediate Tax Code Changes for 2025

As 2025 approaches, several significant changes to the U.S. tax code are set to impact individual taxpayers.  These updates will affect everything from income tax brackets to retirement contributions. Staying informed is crucial for effective tax planning, so let's dive into the top ten biggest tax changes expected for individuals in 2025.

1. Expiration of Key Tax Cuts and Jobs Act (TCJA) Provisions

The Tax Cuts and Jobs Act (TCJA) of 2017 introduced numerous tax cuts for individuals, but many of these provisions are scheduled to expire at the end of 2025.  Unless Congress takes action to extend them, taxpayers could face:

  • Higher tax rates across most income brackets.
  • The return of the personal exemption, which was eliminated under the TCJA.
  • Reduced standard deductions for all filers.
  • Limits on itemized deductions, which were previously capped.

Impact on Taxpayers: Without an extension, these changes could result in higher tax bills for millions of Americans.  Taxpayers should begin planning for these potential increases now.

Back to Top

2. Higher Standard Deductions

Inflation adjustments will lead to higher standard deduction amounts for 2025:

  • Single filers and married individuals filing separately: $15,000.
  • Married couples filing jointly: $30,000.
  • Heads of household: $22,500.

What This Means: These increases will make it easier for many taxpayers to claim the standard deduction instead of itemizing, simplifying the filing process for millions.

Back to Top

3. Changes to Income Tax Brackets

Income thresholds for tax brackets will be adjusted upward in 2025 to account for inflation.  For example:

  • The top tax rate of 37% will apply to single filers earning over $626,350 and married couples filing jointly earning over $751,600.

Planning Opportunity: These adjustments could lower the effective tax rate for some individuals, especially those near the lower end of a tax bracket.

Back to Top

4. Alternative Minimum Tax (AMT) Exemption Increases

The AMT exemption amounts will also rise in 2025:

  • Single filers: $88,100.
  • Married couples filing jointly: $137,000.

Why This Matters: These changes help ensure that fewer taxpayers are subject to the AMT, which is designed to prevent high-income earners from avoiding taxes through deductions and credits.

Back to Top

5. Enhanced Earned Income Tax Credit (EITC)

The EITC, a crucial credit for low- to moderate-income working families, will see an increase in its maximum amount for 2025:

  • Taxpayers with three or more qualifying children can claim up to $8,046.

Who Benefits: This enhancement provides greater financial relief for families, helping to offset the rising costs of living.

Back to Top

6. Expanded Retirement Contribution Limits

Retirement account contribution limits will increase in 2025, with a notable change for those aged 60 to 63:

  • Catch-up contributions for 401(k) plans: Up to $11,250, an increase of $3,750 from the standard limit.

Why It’s Important: This change encourages older workers to save more for retirement during their final working years.

Back to Top

7. Higher Estate and Gift Tax Exemptions

The estate tax exclusion amount will rise to $13.99 million per individual, and the annual gift tax exclusion will increase to $19,000.

Implications: These adjustments allow individuals to transfer more wealth tax-free, making it easier to plan for generational wealth transfers.

Back to Top

8. Increased Health Flexible Spending Arrangement (FSA) Limits

Health FSAs, which allow taxpayers to set aside pre-tax dollars for medical expenses, will see higher contribution limits:

  • Contribution limit: $3,300.
  • Maximum carryover of unused amounts: $660.

How It Helps: These increases make FSAs more attractive for managing healthcare costs, especially for families.

Back to Top

9. Foreign Earned Income Exclusion Adjustments

For Americans working abroad, the foreign earned income exclusion will increase to $130,000 in 2025.

Why It Matters: This adjustment reduces the taxable income of expatriates, making international assignments more financially viable.

Back to Top

10. Higher Limits for Qualified Transportation Fringe Benefits

The monthly limit for qualified transportation benefits, such as commuter transit and parking, will rise to $325.

Benefit for Commuters: This change provides additional pre-tax savings for workers who rely on public transportation or employer-provided parking.

Back to Top

How to Prepare for These Changes

With so many updates on the horizon, it’s essential to take steps now to prepare:

  1. Consult a Tax Professional: A qualified CPA or tax advisor can help you understand how these changes will impact your specific situation.
  2. Adjust Withholding: Ensure your payroll withholding reflects the new tax brackets and standard deduction amounts.
  3. Maximize Retirement Contributions: Take advantage of higher contribution limits to reduce taxable income.
  4. Plan for Expiring TCJA Provisions: Work with your advisor to mitigate potential tax increases if the TCJA provisions expire.
  5. If You Have a Business, Plan Carefully: Businesses are facing changes as well that require careful planning to navigate.  Be sure to consult a ta professional and stay current on business tax code changes.

Back to Top

Final Thoughts

The 2025 tax year will bring significant changes to the U.S. tax code, affecting nearly every taxpayer.  By staying informed and taking proactive steps, you can minimize your tax liability and make the most of these updates.

For personalized guidance, reach out to our tax professionals today.  Planning now can save you time, money, and stress in the future.

Please enter your name.
Please enter a valid phone number.
Please enter a message.
Submit Request

Frequently Asked Questions

Question: If the Tax Cuts and Jobs Act (TCJA) provisions expire at the end of 2025, when should I start adjusting my paycheck withholding/retirement plan contributions?

Answer: Good question—yes, you should begin planning now, not wait until after the calendar year ends. While the exact timing and legislative outcome are uncertain, getting ahead of it helps. For example:

  • Review your 2024 withholdings toward the end of the year and consider modeling a worse-case scenario (higher tax rates or reduced deductions) for 2025.

  • If you’re already maximizing contributions (to a 401(k), IRA, etc.), decide whether to front-load or adjust by year’s end so you’re in a position if the deductions or brackets shift.

  • Talk with your tax advisor in Q4 2024 about potential “pre-tax-damage-control” moves for early 2025 (or even late 2024) so you’re not scrambling in April when the new returns are filed.

Back To FAQ

Question: How do the higher standard deduction and increased tax-bracket thresholds for 2025 affect someone who currently itemizes deductions? Should they stop itemizing?

Answer: That depends on your individual deductions and circumstances, but here are some things to consider:

  • With the rising standard deduction (e.g., $15,000 for single, $30,000 for married filing jointly in 2025 per your blog) it becomes harder for itemizers to “beat” the standard deduction. If your itemized deductions are only slightly above the new standard, you might switch to standard and benefit from the simplicity.

  • Conversely, if you have significant itemized deductions (large mortgage interest, high medical expenses, charitable giving, state and local tax payments, etc.), you’ll want to project whether those will still exceed the new standard.

  • Important: Changing from itemizing to standard deduction can affect things like deductible interest, state and local tax limitations, etc. So it’s wise to run a “what-if” for 2025 now and decide whether to continue itemizing or simplify.

Back To FAQ

Question: For someone working abroad or anticipating a year overseas, how does the increase in the Foreign Earned Income Exclusion (to $130,000 in 2025) interact with U.S. tax obligations and foreign tax credits?

Answer: Excellent point, especially given the increase noted in your blog (foreign earned income exclusion to $130 k in 2025). Here are a few extra details to understand:

  • The foreign earned income exclusion allows qualifying U.S. citizens/residents to exclude up to the stated amount of foreign earned income, reducing U.S. taxable income. But you must meet the bona fide residence test or physical presence test in the foreign country.

  • Increasing the exclusion helps—but it doesn’t completely eliminate U.S. tax obligations. If your foreign income exceeds the exclusion, you’ll still owe U.S. tax on the excess.

  • Also keep in mind the foreign tax credit (FTC): if you pay foreign income taxes, you may be able to use the FTC to offset U.S. tax, which can be more favorable than just using the exclusion depending on your situation.

  • Planning tip: Early in your assignment overseas (or before taking a foreign posting) meet with a tax advisory professional familiar with expatriate tax rules. Because of the new higher exclusion limit, your decision may shift—perhaps you’ll choose to take advantage of the exclusion vs. relying primarily on the credit—but you’ll still need to model both and factor in potential interaction with your U.S. tax bracket, treaty issues, and timing of elections.

Back To FAQ