Staying up-to-date with tax law changes is an important yet often exhausting job. The tax code in the United States is notoriously complex and constantly changes.
If you feel overwhelmed trying to keep up with these changes, consider scheduling a free consultation with a financial advisor on the ARQ Wealth team. Our advisors can help you better understand the 2025 tax changes and explain how each change could impact your finances. Or, continue reading to learn everything you need to know to prepare for tax year 2025.
There are several major federal tax changes to be aware of in 2025, including:
- Marginal Tax Brackets
- IRS Adjustments
- Retirement Account Adjustments
- Social Security Adjustments
NOTE: If you plan on filing your 2025 taxes without professional help, remember that the Internal Revenue Service (IRS) recently launched its free Direct File program. This program is designed to help Americans file taxes more easily and will be available starting January 27th, 2025 in 25 states, including Arizona.
The Direct File program should help make filing easier for Americans with simple tax needs. If you currently file your taxes using a provider like TurboTax then you’ll want to see if Direct File is available in your state. However, people with complicated tax situations should still consider speaking with a tax professional to ensure that they’re taking advantage of all relevant credits and deductions.
Marginal Tax Brackets for 2025
One of the most important things to know when filing your 2025 taxes is your tax bracket. Your tax bracket is based on your annual income and determines the federal income tax you’ll owe.
Here are the federal income tax brackets in 2025:
- 37% for single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly).
- 35% for incomes over $250,525 ($501,050 for married couples filing jointly).
- 32% for incomes over $197,300 ($394,600 for married couples filing jointly).
- 24% for incomes over $103,350 ($206,700 for married couples filing jointly).
- 22% for incomes over $48,475 ($96,950 for married couples filing jointly).
- 12% for incomes over $11,925 ($23,850 for married couples filing jointly).
- 10% for incomes $11,925 or less ($23,850 or less for married couples filing jointly).
To calculate your approximate federal income taxes, let’s consider an example.
If you are a single filer earning $150,000 (or any amount between $103,350 and $197,300) in 2025, you would apply your income to the first four tax brackets. Your first $11,925 of income would be taxed at 10%, your following $11,926 to $48,745 would be taxed at 12%, and so on. So, with an income of $150,000 in 2025, you would owe approximately $29,042.50 if we ignore all deductions, credits, or other adjustments.
If you have questions on how you can reduce your tax obligation (or about income tax rates in general), then be sure to contact one of the professionals on the ARQ Wealth team to better understand how you can take advantage of credits and deductions to reduce your taxable income.
Let’s explore some of the biggest changes coming to the tax code in 2025.
2025 Federal Tax Changes: IRS Adjustments
The IRS adjusts a variety of tax thresholds each year to account for inflation and keep the thresholds fairly consistent with the precious year. Here are the adjustments that the IRS has already announced for 2025:
- Standard Deduction: The standard deduction for single taxpayers and married individuals filing separately will be $15,000 in 2025, up $400 from 2024. For married couples filing jointly, the standard deduction will be $30,000, up $800 from 2024. For heads of households, the standard deduction will be $22,500 in 2025, up $600 from 2024.
- Alternative minimum tax exemption: The exemption amount for unmarried individuals will increase to $88,100 ($68,650 for married individuals filing separately) in 2025 and begins to phase out at $626,350. For married couples filing jointly, the exemption amount will increase to $137,000 and begin to phase out at $1,252,700.
- Earned income tax credit: For taxpayers with three or more qualifying children, the maximum Earned Income Tax Credit will increase to $8,046 in 2025, up from $7,830 in 2024.
- Estate tax credit: The estate exclusion will increase to $13.99 million in 2025, up from $13.61 million in 2024.
Annual exclusion for gifts: Annual gift tax exclusions will increase to $19,000 in 2025, up from $18,000 in 2024.
These are just the most notable adjustments taking place in 2025. But, you can explore the full list of tax inflation adjustments here.
Retirement Account Adjustments
In addition to inflation adjustments, the IRS also announced several changes to contribution limits for popular retirement plans in 2025.
For the most part, the IRS has increased the amount of money you can contribute to your retirement plan.
Adjustments for 401(k)s and Similar Plans
In 2025, the IRS has increased the contribution limit for 401(k), 403(b), governmental 457 plans, and government Thrift Savings Plans to $23,500, up from $23,000 in 2024.
The 401(k) catch-up contribution limit will remain at $7,500 for participants ages 50 and older. However, the catch-up contribution limit for investors ages 60 to 63 has increased to $11,250 in 2025 from $7,500 in 2024.
Adjustments for Individual Retirement Accounts
The IRS has left the annual contribution limit for Individual Retirement Accounts (IRAs) unchanged at $7,000 for 2025.
However, the income phase-out range for taxpayers has been increased to between $150,000 and $165,000 for singles and heads of household, up from between $146,000 and $161,000 in 2024. For married couples filing jointly, the income phase-out range will be between $236,000 and $246,000, up from $230,000 to $240,000 in 2024.
Social Security Adjustments
The Social Security tax rate will remain unchanged at 6.2% in 2025.
However, high earners should be aware that the Social Security Administration is increasing the maximum amount of income subject to Social Security taxes. In 2025, you (and your employer) will pay an additional $465 in Social Security taxes if you earn over $176,100 – this taxable maximum was increased from $168,600 in 2024.
Also, while it’s not technically a tax change, the SSA announced that Social Security benefits will increase by 2.5% in 2025 thanks to the program’s cost-of-living adjustments (COLA). Arizona residents who collect Social Security will enjoy the full benefit of this COLA increase since Arizona does not tax Social Security payments.
What Taxes Will I Owe in 2025?
You can explore the IRS 2025 tax brackets to get an approximate understanding of what your federal tax obligation will be. But remember that this is just a starting point and does not include deductions, credits, and many other factors. It also does not include your state tax liability, which you must calculate and pay in addition to your federal tax.
As far as state taxes go, Arizona residents can expect to pay the following tax rates in 2025:
- Income tax: 2.5% flat tax
- Social Security taxes: 0% state tax. However, Arizona residents pay federal taxes on SS.
- Estate taxes: None
- Inheritance tax: None
- Sales tax: 5.6%
- Property tax: Arizona charges an average of 0.63% of a home’s assessed value, which means it has relatively low property taxes compared to other states.
Arizona is fairly tax-friendly compared to other states and was ranked 15th overall on the Tax Foundation’s 2025 State Tax Competitiveness Index. To get a full review of your 2025 tax obligations, please contact a financial planner at ARQ Wealth today.
Looking Ahead: Expiration of the TCJA
Overall, Americans can expect the tax environment in 2025 to be fairly similar to 2024. While the IRS has announced several threshold adjustments, there are very few drastic changes. However, you can expect a lot more disruption in 2026 when significant portions of the Tax Cuts and Jobs Act (TCJA) are set to expire unless acted upon by Congress.
Frequently Asked Questions
What are the changes to the tax code in 2025?
The IRS announced a handful of changes to the tax code in 2025, mainly including threshold and retirement contribution adjustments.
What is the Child Tax Credit in 2025?
The child tax credit was $2,000 in 2025. However, the Tax Cuts and Jobs Act of 2017 temporarily increased it. Unless Congress acts, it will return to $1,000 after 2025.
Are tax laws changing a lot in 2025?
There are several notable changes to the tax code in 2025. However, 2026 will likely bring even more changes from Congress due to the upcoming expiration of the Tax Cuts and Jobs Act.
Conclusion
If you have more questions or concerns about your taxes in 2025, then reach out to our excellent financial team at ARQ Wealth. We can help you reduce your tax burden.
Get in touch with a financial advisor by calling (480) 214-9572 or using our contact form.
