Exciting news for many Americans: checks worth thousands of dollars could soon be sent out, thanks to the Internal Revenue Service’s (IRS) new inflation adjustment rule. These adjustments are set to impact tax filings for the 2025 tax year, with changes confirmed in a recent press release.
Understanding the Earned Income Tax Credit (EITC)
This Article Includes
One of the most significant adjustments concerns the Earned Income Tax Credit (EITC), a refundable credit designed to support low- and moderate-income individuals and families, especially those with children. The EITC can make a big difference in your tax refund if you qualify.
To claim the EITC, there are a few essential requirements you need to meet. For the 2023 tax returns, these included:
- Earned annual income: No more than $63,398.
- Investment income: Less than $11,000.
- Valid Social Security number: Required by the final date for 2023 returns.
- U.S. citizenship or residency: Must have been a U.S. citizen or resident alien for the entire year.
- Foreign Earned Income: Cannot have filed a Foreign Earned Income form.
- Marital status: Must meet certain rules if you separated from your spouse.
While similar qualifications are expected for the 2025 tax year, slight adjustments may occur in the income thresholds.
Increased Benefits for Families
If you meet the six criteria and also have three or more children who you claim as dependents, you could be eligible for a significantly higher EITC amount of $8,046. This reflects a generous increase from $7,830 for the 2024 tax year, which is a total increase of $216. Expect to receive this amount as part of your tax return in early 2026.
What Is the Consumer Price Index?
The IRS bases its inflation adjustments on the Consumer Price Index (CPI), a key measure of inflation in the United States. The Bureau of Labor Statistics releases CPI figures monthly, providing detailed insights into price changes for various items over the previous year. Although the CPI doesn’t cover every American, it does measure prices for around 90% of the population, focusing on urban consumers.
Other Inflation Adjustments
Several other categories have also seen increases due to the inflation adjustments for the 2025 tax year. These include:
- Alternative minimum tax exemption amounts
- Qualified transportation fringe benefits
- Health flexible spending cafeteria plans
- Medical savings accounts
- Foreign earned income exclusion
- Estate tax credits
- Annual exclusion for gifts
- Adoption credits
However, some areas remain unchanged, including personal exemptions, itemized deductions, and lifetime learning credits.
Resources and Support
For more detailed information about these changes and the amounts involved, visit the IRS website. There are also resources available for filing taxes for free, as well as opportunities to claim a portion of a $14.95 million pot from a recent “privacy” settlement.
Conclusion
If you believe you might qualify for these tax credits and adjustments, it’s essential to stay informed about the requirements and potential benefits. The changes in 2025 could lead to significant financial support for many American families, helping to ease the burden of inflation and improve overall financial security.