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Annual Tax Adjustments

Key Tax & Retirement Savings Numbers for 2025

The start of a new year often ushers in important tax updates, as the IRS adjusts numerous provisions to reflect inflation. Annual tax adjustments are essential for preserving the value of tax benefits, shielding taxpayers from the erosive effects of inflation. By staying informed about these updates, you can refine your financial planning, enhance tax strategies, and maximize retirement savings opportunities for 2025 and beyond.

How the IRS Calculates Annual Tax Adjustments

The IRS’s annual tax adjustments are grounded in a detailed analysis of inflation's effects on the U.S. economy. Before 2018, these adjustments were based on the Consumer Price Index for Urban Consumers (CPI-U).

However, the Tax Cuts and Jobs Act of 2017 introduced the Chained Consumer Price Index (C-CPI) as the new standard. Unlike the traditional CPI-U, the C-CPI considers how consumers alter their purchasing habits in response to rising prices, resulting in smaller annual increases to tax parameters.

These adjustments are designed to shield taxpayers from inflation-induced tax hikes while preserving the real value of deductions, credits, and income thresholds. By aligning tax parameters with the current state of the economy, the IRS helps ensure the tax system remains fair and prevents inflation from disproportionately impacting taxpayers' obligations.

2025 Federal Income Tax Brackets and Rates

In 2025, the federal income tax system will continue to have seven tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top marginal tax rate of 37% will apply to taxpayers with taxable income exceeding $626,350 for single filers and $751,600 for married couples filing jointly.

2025 Standard Deduction Amounts

In 2025, the annual tax adjustments include higher standard deduction amounts. Specifically, the standard deduction increases to $15,000 for single filers and $30,000 for married couples filing jointly.

For heads of household, the 2025 standard deduction amount is $22,500. Meanwhile, seniors aged 65 and older can claim an additional standard deduction of $2,000 if filing as single and $1,600 if filing jointly.

Alternative Minimum Tax (AMT) in 2025

The Alternative Minimum Tax (AMT), introduced in the 1960s, was designed to ensure that high-income taxpayers pay a minimum level of federal income tax, even after accounting for deductions and credits. It serves as a safeguard against tax avoidance strategies, primarily targeting high earners, while generally sparing middle-income individuals from its effects.

Here are the key AMT annual tax adjustments for 2025:

  • In 2025, the exemption amounts are $88,100 for single filers and $137,000 for married couples filing jointly.
  • The 28% AMT rate threshold applies to AMTI exceeding $239,100 for all taxpayers ($119,550 for married couples filing separately).
  • Exemptions begin to phase out once AMTI surpasses $626,350 for single filers and $1,252,700 for married couples filing jointly.

Child Tax Credit

In 2025, the maximum Child Tax Credit remains $2,000 per qualifying child, as this tax credit isn’t subject to annual inflation adjustments. However, the refundable portion of the credit, which allows eligible taxpayers to receive a refund even if their tax liability is zero, is adjusted for inflation and increases to $1,700 this year.

2025 Capital Gains Tax Brackets

For the 2025 tax year, individual taxpayers with total taxable income of $48,350 or less will not owe any federal capital gains tax. However, for those earning between $48,351 and $533,400, long-term capital gains are taxed at a rate of 15%. In addition, individuals with taxable income exceeding $533,400 are subject to a 20% capital gains tax rate.

Qualified Business Income Deduction

The Tax Cuts and Jobs Act of 2017 (TCJA) provides a 20% deduction for pass-through business income, offering significant tax relief to eligible business owners. In 2025, income limits for this deduction will begin to phase in at $197,300 for individual filers and $394,600 for married couples filing jointly. Taxpayers exceeding these thresholds may see their deductions reduced, depending on factors such as the nature of the business and overall income level.

Annual Gift Tax Exclusion

In 2025, the annual gift tax exclusion increases to $19,000 per recipient, up from $18,000 in 2024. In other words, individuals can gift up to $19,000 to any person without incurring gift tax or using their lifetime exemption.

For gifts to non-U.S. citizen spouses, the exclusion rises to $190,000, an increase from $185,000. These annual tax adjustments allow for greater tax-free gifting opportunities while accounting for inflation.

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

The annual contribution limit for 401(k) and 403(b) plans increases to $23,500 in 2025, up from $23,000 in 2024. Moreover, taxpayers aged 50 and older can make an additional $7,500 catch-up contribution, unchanged from 2024, bringing their total contribution limit to $31,000.

New SECURE 2.0 Super 401(k) Catch-Up Contributions for Ages 60-63

Beginning in 2025, participants aged 60 to 63 can make a special catch-up contribution equal to the greater of $10,000 or 150% of the 2024 catch-up limit, indexed for inflation. For the 2025 tax year, this results in a maximum catch-up contribution of $11,250, bringing the total contribution limit for these participants to $34,750 (including the standard $23,500 contribution).

Traditional and Roth IRAs

In 2025, the annual contribution limit for traditional and Roth IRAs remains $7,000, unchanged from 2024. Similarly, taxpayers aged 50 and older can contribute an additional $1,000 catch-up amount, bringing their total limit to $8,000.

However, it's important to remember that income limits apply to Roth IRA contributions. In 2025, single and head-of-household filers with a modified adjusted gross income (MAGI) below $150,000 (up from $146,000 in 2024) are eligible to make the full contribution. For married couples filing jointly, the full contribution is available with a MAGI below $236,000.

SIMPLE IRAs

The 2025 contribution limit for SIMPLE IRA plans increases to $16,500, up from $16,000 in 2024. Furthermore, under SECURE 2.0, certain eligible SIMPLE plan participants may contribute up to $17,600.

Additionally, the catch-up contribution for participants aged 50 and older remains at $3,500. Meanwhile, for applicable plans, this catch-up limit increases to $3,850.

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. 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 $3,300 for family coverage (up from $3,200).

2025 HSA Contribution Limits:

  • Individual coverage: Increased to $4,300 in 2025, 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.

Staying Informed of Annual Tax Adjustments

Staying informed about the latest tax thresholds and rates is crucial for making sound financial decisions throughout the year. Indeed, proactive planning empowers you to optimize tax savings, maximize retirement contributions, and remain compliant with evolving regulations. 

At Kukui Tree Capital Management, our mission is to support our clients at every stage of their financial journey, empowering them to achieve financial prosperity through comprehensive, tax-aware wealth management. If you’re looking for personalized financial planning and investment guidance, we’re here to help. Contact us today to schedule a “Get Acquainted” Meeting and see if we’re the right fit for you.