As we close out 2024, we can start to look forward to planning in 2025. As always, taxes will play a significant role in financial planning, and every year the IRS updates income tax brackets, standard deductions, qualified plan and IRA contribution limits, and more. We’ll review some of the changes below.
2025 Ordinary Tax Brackets: Moderate Inflation Adjustments
| Tax Bracket | Single | Change | Married Filing Joint | Change |
| 10% | $0 – $11,925 | + $325 | $0 – $23,850 | + $650 |
| 12% | $11,925 – $48,475 | + $1,325 | $23,850 – $96,950 | + $2,650 |
| 22% | $48,475 – $103,350 | + $2,825 | $96,950 – $206,700 | + $5,650 |
| 24% | $103,350 – $197,300 | + $5,350 | $206,700 – $394,600 | + $10,700 |
| 32% | $197,300 – $250,525 | + $6,800 | $394,600 – $501,050 | + $13,600 |
| 35% | $250,525 – $626,350 | + $17,000 | $501,050 – $751,600 | + $20,400 |
| 37% | $626,350 + | $751,600+ |
All the standard tax brackets received a moderate inflation adjustment upwards. The Married Filing Joint brackets are all double the Single brackets with the exception of the 37% bracket. The highest bracket delivers a significant marriage penalty by potentially taxing $501,100 more at the 37% bracket relative to two single filers with the same combined income who would pay 35% on that incremental income.
2025 Capital Gains & Qualified Dividends Brackets
| Tax Bracket | Single | Change | Married Filing Joint | Change |
| 0% | $0 – $48,350 | + $1,325 | $0 – $96,700 | + $2,650 |
| 15% | $48,350 – $533,400 | + $14,500 | $96,700 – $600,050 | + $16,300 |
| 20% | $533,400+ | $600,050 |
Capital gains and qualified dividend income tax brackets also received a moderate inflation adjustment. Here we also see a marriage penalty as a couple with married filing joint status will face the 20% bracket on combined capital gains/qualified dividends well before two individuals with the same combined income.
Note that capital gains and qualified dividend income brackets are layered on top of the ordinary brackets on page 1. For example, a single taxpayer with $100,000 in taxable ordinary income who is in the 22% ordinary bracket will be in the 15% capital gain/qualified dividend bracket at dollar one of this type of income.
Net Investment Income Tax (NIIT)
NIIT refers to a Medicare surcharge of 3.8% which is applicable to investment income (interest, capital gains, ordinary or qualified dividends, etc). The NIIT applies based on a taxpayer’s Modified Adjusted Gross Income (MAGI). For purposes of NIIT, your MAGI is your adjusted gross income (AGI) adjusted for certain foreign deductions or income. The specifics of MAGI are beyond the scope of this write-up, but the important note here is that the NIIT MAGI thresholds for individual taxpayers do NOT get indexed for inflation. For 2025, the NIIT MAGI thresholds will once again be $200,000 for individuals and $250,000 for married filing joint taxpayers.
Standard Deduction
The chart on Page 1 refers to “taxable” income. Taxable income is the result of various deductions (401k contributions, deductible medical premiums, standard or itemized deductions, etc.) applied to gross income. Of course, it’s not quite that simple, as there also are add-backs such as taxable social security. For those taxpayers who do not itemize deductions, the standard deduction applies. The standard deduction has also been indexed for inflation.
Filing Status Standard Deduction Change
Single $15,000 + $400
Married Filing Joint $30,000 + $800
For taxpayers who are 65 and older OR who are blind, an addition to the standard deductions noted above is allowed. For single filers, the additional standard deduction will be $2,000 in 2025, while married filing joint filers get an additional standard deduction of $1,600 (per qualifying individual). For those who are 65 and older AND blind, the available deduction is doubled.
IRA Contributions
The contribution limit for IRAs and ROTH IRAs were NOT adjusted for 2025 and remain at $7,000. Individuals who are 50 and older can make a catch-up contribution of $1,000, the same as 2024.
While the contribution limits were not increased, the phase-put ranges applicable to the deductibility of IRA contributions and eligibility to make a ROTH IRA contribution were indexed. The income limits below are based on Modified Adjusted Gros Income (MAGI). In true IRS fashion, however, the determination of MAGI for IRA contributions is different from the MAGI specified above in the context of the NIIT. Here again, the definition of MAGI is beyond the scope of this write-up.
For ROTH IRAs – The phase-out ranges for MAGI have been adjusted up to
Single Filers $150,000 to $165,000
Married Filing Joint $236,000 to $246,000
For IRA deductibility – The applicability of the below phase-out range depends on whether a taxpayer is covered by a retirement plan at work. Taxpayers who are not covered by a retirement plan (or married where a spouse is covered) do not face income limits on deductibility. For those covered by a retirement plan, the phase-out ranges below apply to the deductibility of contributions.
Single Filer Covered by Plan $79,000 – $89,000
Married Filer Covered by Plan $126,000 – $146,000
Married Filer NOT Covered by Plan, $236,000 – $246,000
But Spouse is Covered by a Plan.
Qualified Plan Contributions
For employees who participate in a 401(k), 403(b) or government 457, the salary deferral limit was increased $500 to $23,500 for 2025. The catch-up limit for employees who are 50 or older was not increased and remains at $7,500. This means an employee over 50 can contribute $31,000 via salary deferral. Business owners have the potential to make a $70,000 total contribution including profit sharing to a 401(k) or SEP IRA.
Unique Catch-Up for Ages 60-63 – Under the SECURE Act 2.0, employees who are 60-63 years old are allowed an increased catch-up limit of $11,250 for 2025. Note that while the law will allow for the additional catch-up contribution, the plan must adopt the provision to allow for the additional catch-up limit. Those who qualify and want to take advantage of the additional deferral available should check with their plan administrator to determine if their plan will allow for the additional contribution.
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The tax changes highlighted above are the ones which are most relevant to our clients. Filers with a filing status other than single or married filing joint, such as married filing single or head-of-household, may face different limitations. Entity filers such as trusts or c-corporations will also face different tax policies.
In addition to the items noted above, many parents will be eligible for the Child Tax Credit, business owners will be eligible for the Qualified Business Income deduction, energy conscious filers will continue to have energy credits available, and more.
Please reach out to your advisor if you have questions about your specific tax situation.
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The views expressed represent the opinion of Riverchase Wealth Management, LLC. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Riverchase Wealth Management, LLC believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability.
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