We all believe that taxes are inevitable for everyone, but the reality is a little more nuanced and includes intricate Internal Revenue Service (IRS) regulations. Tax season is approaching with the new year. Knowing if you are exempt from federal taxes is vital and significant since it will influence your financial decisions throughout the year. While certain taxes, such as sales tax, are unavoidable, state and income taxes are.
IRS Updates on Taxes for 2025:
The IRS modifies its payroll tax marginal tax rates annually to stay up with inflation. Because their income hasn’t grown, this guarantees that those who get cost-of-living pay increases stay in the same tax bracket:
- 10% for those with earnings under $11,925 ($23,850 for married couples filing jointly).
- $23,850 for married couples filing jointly, and 12% for earnings exceeding $11,925.
- For earnings beyond $48,475 ($96,950 for married couples filing jointly), the percentage is 22%.
- Earnings exceeding $103,350 are subject to a 24% tax ($206,700 for married couples filing jointly).
- 32% for those making over $197,300 ($394,600 for married couples filing jointly).
- For incomes beyond $250,525 ($501,050 for married couples filing jointly), the tax rate is 35%.
- $751,600 for married couples filing jointly, or 37% for earnings exceeding $626,350.
Standard deductions have also been raised to assist people in paying lower taxes. The IRS states that “the standard deduction increases to $15,000 for 2025, an increase of $400 from 2024, for married individuals and single taxpayers filing separately for tax year 2025.” The standard deduction increases by $800 from tax year 2024 to $30,000 for married couples filing jointly. In 2025, the standard deduction for heads of families will be $22,500, which is $600 more than in 2024.
If they fulfill the requirements, those who have had their salaries withheld can also submit returns to get their money back.
As long as they fulfill the requirements of the Internal Revenue Code, nonprofit organizations such as churches, hospitals, schools, and shelters, as well as most Americans residing overseas, are exempt from paying taxes.
Although the regulations are a little more difficult for expats, people who make less than $130,000 annually and reside overseas continuously are exempt from paying taxes in the US. Since people who reside abroad permanently must also pay taxes in their new nation, this prevents most families from paying double taxes on their income.
Notably, the annual gift exclusion will rise to $19,000 per person, and the baseline exclusion threshold for the inheritance tax (formally called the Estate Tax Credit) will be $13,990,000.
Other tax credits will also be changed. For example, the Earned Income Tax Credit will now be $8,046 for qualified taxpayers with three or more qualifying children, up from $7,830 for the 2024 tax year.
Large deductions can lower taxable income, which may lead to exemptions. Legitimate deductions include charity contributions, mortgage interest, and high medical costs.
The yearly deductible for self-only coverage in Medical Savings Accounts for the 2025 tax year ranges from $2,850 to $4,300, representing increases of $50 and $150, respectively, over the prior year. The maximum out-of-pocket cost for self-only coverage will increase from $5,550 in 2024 to $5,700. The yearly deductible for family coverage must be between $5,700 and $8,550, representing increases of $150 and $200, respectively, over 2024. In 2025, the family coverage out-of-pocket spending cap will rise from the previous tax year’s $10,200 cap to $10,500.
You can see all of the additional changes that will be made on the IRS website, but it would be prudent to consult a tax expert who can review all of your information if you have any questions or concerns.
