Key Changes to Cafeteria Plans and Standard Deductions
This Article Includes
Cafeteria plans, which offer employees the flexibility to choose from various health benefits, will see a slight increase in 2025. The maximum contribution will rise by $100, allowing employees to set aside up to $3,300 for health-related expenses. For those with unused funds, the carryover limit has also been bumped up by $20, bringing it to $660.
Standard deductions for taxpayers will increase as well:
- Single taxpayers and married individuals filing separately will see their deduction rise to $15,000, up by $400 from the previous year.
- Married couples filing jointly will benefit from a $30,000 deduction, an $800 increase.
Though these increases are smaller than those made for 2024, they still offer some extra cushion for taxpayers dealing with inflation.
Other Notable Inflation Adjustments
In addition to cafeteria plans and deductions, several other tax provisions will see increases:
- Earned Income Tax Credit (EITC): Taxpayers with at least three qualifying children can expect a maximum credit of $8,046, up $216 from 2024.
- Transportation Fringe Benefits: The monthly limit for qualified transportation benefits and parking will both rise by $10, reaching $325.
- Medical Savings Accounts (MSAs): For individual coverage, the deductible minimum will increase to $2,850, with a maximum out-of-pocket expense of $5,700. For family coverage, the deductible will range from $5,700 to $8,550, with a maximum out-of-pocket cost of $10,500.
- Estate Tax Exclusion: Estates for those who pass away in 2025 will have an exclusion amount of $13.99 million, a $380,000 increase from the previous year.
- Gift Tax Exclusion: The annual gift tax exclusion will increase by $1,000, allowing for tax-free gifts up to $19,000 per recipient.
Marginal Tax Rate Changes
The tax brackets themselves will remain unchanged in terms of percentage rates, but the income thresholds for each bracket will increase, helping to account for inflation. Here’s a breakdown of the new thresholds:
- 37% for single taxpayers earning more than $626,350, or $751,600 for married couples filing jointly.
- 35% for incomes over $250,525 for singles, or $501,050 for married couples filing jointly.
- 32% for singles earning over $197,300, or $394,600 for married couples.
- 24% for incomes above $103,350 for singles, or $206,700 for married couples.
- 22% for incomes over $48,475 for singles, or $96,950 for married couples.
- 12% for singles earning more than $11,925, or $23,850 for married couples.
- 10% for incomes up to $11,925 for singles, or $23,850 for married couples.
Tax Provisions That Remain Unchanged
While many aspects of the tax code are adjusted for inflation, some key provisions will stay the same for 2025. For example:
- Personal exemptions remain at zero, as they were eliminated in the 2017 Tax Cuts and Jobs Act.
- No limitations on itemized deductions continue to apply.
- Lifetime learning credits also remain unchanged since 2020.
Conclusion
The IRS’s inflation adjustments for 2025 offer taxpayers slightly higher deductions, credits, and limits to offset the rising cost of living.
These updates, especially for cafeteria plans and the earned income tax credit, could provide a financial boost for many Americans in the upcoming tax season.
As inflation stabilizes and the Federal Reserve’s interest rate hikes take effect, these changes reflect a continued effort to keep tax provisions aligned with the current economic landscape.
