New Tax Laws 2025: Tax Brackets and Deductions

Every year, the Internal Revenue Service (IRS) makes tax inflation adjustments in more than 60 tax provisions. These adjustments are made to keep tax brackets, deductions, and other related elements aligned with changes in the cost of living.

According to available reports, inflation-related tax adjustments for the 2025 financial year are estimated to increase by approximately 2.8%. This also includes adjustments to the federal income tax brackets.

In July 2025, a comprehensive legislative package reportedly referred to as the One Big Beautiful Bill Act introduced several proposed tax provisions. The package is also expected to make certain aspects of the 2017 Tax Cuts and Jobs Act (TCJA) permanent, which were previously scheduled to lapse by the end of 2025.

In this guide, you will learn about the new tax laws, deductions, and credits potentially applicable to tax year 2025 (returns filed in 2026).

Summary of 2025 New Income Tax Law Changes

These are key changes referenced in the proposed tax bill:

• The seven federal tax brackets 10%, 12%, 22%, 24%, 32%, 35%, and 37% are expected to remain in place.
• Under the proposed tax provisions, the standard deduction may increase, and an additional bonus deduction for older taxpayers has been discussed.
• The child tax credit may increase to a maximum of $2,200 per qualifying child, subject to legislative approval.
• The SALT deduction cap is proposed to increase temporarily, subject to income-based phaseouts.
• The income threshold for the Alternative Minimum Tax (AMT) exemption phaseout is expected to be adjusted for inflation.

2025 Tax Brackets

For the fiscal year 2025, the seven federal tax rates remain unchanged, although income thresholds are adjusted for inflation. Please consider the table below for a clearer understanding of the proposed 2025 tax brackets.

2025 New Tax Law – Standard Deduction and Bonus Deduction

A standard deduction is a fixed amount that taxpayers can subtract from their income before tax rates are applied.

Under the 2025 tax adjustments, the estimated standard deduction is:

Regarding the additional deduction for older adults, this provision has been discussed for possible application from 2025 through 2028.

For taxpayers aged 65 or older, the total standard plus additional deduction is estimated at $21,750 for single filers and $43,500 for married couples filing jointly, subject to income thresholds.

Taxpayers eligible for the full additional deduction generally must have modified adjusted gross income (MAGI) of $75,000 or less (single filers) or $150,000 or less (married filing jointly). Above these thresholds, the deduction gradually phases out.

Capital Gains Tax Bracket for 2025

Under the 2025 tax adjustments, capital gains tax brackets are expected to increase slightly for inflation. Long-term capital gains tax rates differ from ordinary income tax rates.

Some lower-income taxpayers may qualify for a 0% long-term capital gains tax rate when selling qualifying long-term assets. For example, a married couple filing jointly with taxable income up to approximately $96,700 may qualify for a 0% rate, subject to confirmation by IRS updates.

Net Investment Income Tax (NIIT) 2025

The Net Investment Income Tax (NIIT) applies to certain investment income exceeding specified thresholds. This includes individuals, estates, and trusts.

Net investment income includes interest, dividends, capital gains, rental income, and other applicable investment income as defined by the IRS.

NIIT is generally calculated at 3.8% on the lesser of net investment income or the amount by which MAGI exceeds the threshold. These thresholds are typically not indexed for inflation.

Alternative Minimum Tax (AMT) 2025

The Alternative Minimum Tax (AMT) is designed to ensure higher-income taxpayers pay a minimum level of tax.

The AMT was introduced in 1969 to address tax avoidance among high-income taxpayers. For 2025, AMT exemption amounts are expected to be adjusted for inflation.

The adjustments for 2025 include:

• Approximately $88,100 for single filers
• Approximately $137,300 for married couples filing jointly

The AMT phaseout generally begins once AMT income reaches specified thresholds, with gradual reductions applied.

Child Tax Credit 2025

Under the proposed 2025 tax updates, the child tax credit may increase to a maximum of $2,200 per qualifying child, subject to legislative approval.

Eligible taxpayers may receive up to $1,700 as a refundable additional child tax credit, subject to eligibility criteria and inflation adjustments.

Eligibility requirements include:

• Child must be under age 17 at the end of the tax year.
• Must be claimed as a dependent.
• Must meet citizenship requirements.
• Must live with the taxpayer for more than half the year.

Furthermore, the child tax credit is only obtainable for the taxpayer with modified adjusted gross income (MAGI) up to a set threshold, and after which it is phased out.

Lifetime Estate Tax Exemption and Gift Tax Exclusion 2025

Regarding the new tax law of 2025, the gift tax exclusion allows the first $19,000 worth of gifts to be tax-free, meaning you can exclude them from tax. $190,000 is a gift to spouses who are not US citizens.

Additionally, the lifetime exclusion amount of the deceased who passed away in 2025 is capped at $13.99 million per individual.

In 2026, the loan amount will be increased to 15% million for each individual, and it will be adjusted yearly in accordance with inflation.

The deduction levels of the State and Local Tax (SALT)

As per the new tax law 2025, the deduction limit of SALT will be increased to $40,000 for he married couple filing a return jointly. The original limit was $10,000.

Ensure that the new deduction amount will only apply to individuals with MAGI up to a particular set threshold. If the amount goes over the set threshold, the deduction amount passes out. Once the amount passes the maximum cap, it comes to $10,000 for a married couple filing a joint tax return.

The phaseout threshold and the new income limit increase by 1% every year through the tax year 2020. Additionally, the SALT deduction amount is permanently reduced to $10,000 and $5,000 for a married couple filing separately.

The New Tax Law 2025: Retirement Plan Contribution Adjustments

The new tax law for 2025 did not significantly impact the limits of retirement account contributions.

$7,000 is the annual contribution limit for traditional or Roth IRAs for the year 2025. For individuals aged 50 and above, the additional catch-up contribution limit remains $1,000 for 2025.

Employees participating in governmental 457 plans, 401(k), 403(b), and the federal government's Thrift Savings Plan have an annual contribution limit increased to $23,500.

The contribution limit for a SEP IRA (Simplified Employee Pension IRA) in 2025 is the lesser of $70,000 or 25% of the employee’s compensation. The maximum compensation that can be considered for SEP IRA contributions in 2025 is increased to $350,000.

Taxpayers with a SIMPLE IRA can contribute up to $16,500 in 2025. Individuals aged 50 and older can contribute an additional $3,500 as a catch-up contribution.

The catch-up contribution limit also applies to employees aged 50 and above participating in most 401(k), 403(b), governmental 457 plans, and the federal government's Thrift Savings Plan. The catch-up contribution limit remains $7,500 for 2025.

The Secure 2.0 Act provides a higher catch-up contribution limit for employees aged 60, 61, 62, and 63 participating in these plans.

For 2025, the higher catch-up contribution limit is $11,250. For individuals aged 60 to 63 contributing to SIMPLE IRAs, the higher catch-up contribution limit is $5,250.

The MAGI ranges for determining eligibility for Roth IRAs are also increased for 2025.

Tax Provision Not Changing For 2025

Certain items are not adjusted as a result of inflation under the current tax law. Hence, the provisions that remain unchanged are:

Personal Exemptions: These exemptions remain eliminated under the Tax Cuts and Jobs Act (TCJA).

Itemized Deductions: High-income taxpayers in the top tax bracket may face limitations on certain itemized deductions under applicable tax rules.

Lifetime Learning Credit: The Lifetime Learning Credit continues without inflation adjustment after December 31, 2020.

Get Your Taxes Filed By The US Tax Experts

Conforming to the new tax laws to stay in compliance with the Internal Revenue Service is essential. Staying compliant not only enhances your financial plan but also helps you make informed, long-term financial decisions.

For someone new to the concept of the tax laws, understanding them and then filing your taxes on your own can be troublesome. Hence, you must take the help of an expert to abide by the law.

Savetaxs is a leading name in the taxation industry. We have helped thousands of US citizens and NRIs to file their taxes in the US, ensuring all the permanent and temporary changes in the tax code are considered.

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