In the US, the IRS will make three big changes to the tax system in 2025. These changes are meant to make tax payments more in line with the rising cost of living.
The tax brackets, the standard deduction, and the Earned Income Tax Credit (EITC) have all been updated as part of these changes.
These changes are meant to even out the effects of inflation on Americans’ incomes so that people who only make more money to keep their purchasing power do not have to pay unfairly higher taxes.
The Alternative Minimum Tax (AMT) has also been changed to make sure that people with high incomes pay at least some taxes, even if they get certain tax breaks.
This measure makes sure that the attorney system stays fair and progressive by dividing up debts based on income. In this way, the IRS adapts to the needs of the economy and works to make the tax system better for people who pay it.
Tax brackets and standard deduction in 2025
It is important to change the tax brackets for 2025 so that people whose income changes because of inflation do not have to pay more in taxes just to keep their purchasing power the same.
Tax brackets are levels of income that show how much tax a person has to pay. These increases make sure that workers do not have to pay more tax on income that is already higher than inflation. In this way, taxpayers will stay in the right tax bracket.
The amounts for the standard deduction, which lowers taxable income, have gone up for everyone who files. This gives even more help by lowering the tax burden right away and stopping wage increases caused by inflation from affecting tax payments.
Earned Income Tax Credit (EITC)
This year, there will be another big change: the Earned Income Tax Credit. This credit is meant to help families with low and moderate incomes.
The EITC will be raised, which will help families that meet certain criteria, like having an income below USD 63,398 and investment income below USD 11,000. This will happen in the tax year 2023.
Among the requirements to get this credit in 2025 are:
- Have worked and earned less than USD 63,398.
- Have investment income of less than USD 11,000.
- Possess a valid Social Security number and be a citizen or resident for the year.
- Meet the rules for married taxpayers who do not file a joint return.
Families with children can really benefit from this credit, but qualifying households without children can also get it.
Alternative Minimum Tax (AMT)
The Alternative Minimum Tax (AMT) has been changed to make sure that people with high incomes who get certain tax breaks pay at least the minimum amount of tax.
This tax works by getting rid of or lowering deductions and exclusions and applying certain rates to adjusted income. This keeps the attorney system fair.
The AMT is meant to make sure that people with high incomes do not get around paying taxes by getting exemptions or taking too many deductions.
The AMT only affects a small group of taxpayers, mostly those with high incomes. However, the changes are necessary to keep the tax system progressive.
It is the goal of these changes to bring the attorney system up to date and be fair to taxpayers as the cost of living in the US rises.