Rev. Proc. 2022-38: Key Tax Inflation Adjustments
Rev. Proc. 2022-38 details the official IRS inflation adjustments for the 2023 tax year, affecting numerous deductions, credits, and income thresholds.
The Internal Revenue Service (IRS) issues Revenue Procedures to provide guidance on tax matters and communicate its interpretation of the Internal Revenue Code. Each year, the IRS details annual inflation adjustments for numerous tax provisions to reflect changes in the cost of living. This process prevents “bracket creep,” where inflation pushes taxpayers into higher tax brackets even though their real purchasing power has not increased. The adjustments for the 2025 tax year are central to tax planning, while the 2024 figures are provided for comparison.
Key Adjustments for Individual Taxpayers
For 2025, the marginal tax rate brackets have been adjusted for inflation. For single filers, the 24% bracket begins at $103,350, the 32% at $197,300, the 35% at $250,525, and the top 37% rate at $626,350. For Married Filing Jointly, these rates begin at $206,700, $394,600, $501,050, and $751,600, respectively. For comparison, the 2024 top 37% bracket began at $609,350 for single filers and $731,200 for joint filers.
The standard deduction, a fixed amount that reduces taxable income, has also increased. For 2025, the deduction for Single filers is $15,000, for Married Filing Jointly is $30,000, and for Heads of Households is $22,500. These amounts for 2024 were $14,600, $29,200, and $21,900, respectively. An additional standard deduction is available for taxpayers who are aged or blind.
The Alternative Minimum Tax (AMT) ensures high-income individuals pay a minimum amount of tax. For 2025, the AMT exemption is $88,100 for single filers and $137,000 for joint filers, with the phaseout beginning at $626,350 and $1,252,700, respectively. For 2024, the exemption was $85,700 for single filers and $133,300 for joint filers.
Tax credits, which directly reduce tax liability, were also adjusted. For 2025, the maximum Earned Income Tax Credit (EITC) for qualifying taxpayers with three or more children is $8,046, and the maximum adoption credit is $17,280. For 2024, the maximum EITC was $7,830 and the adoption credit was $16,810.
Adjustments Affecting Gifts and Estates
Annual updates also provide figures for wealth and estate planning. The annual gift tax exclusion for 2025 is $19,000, up from $18,000 in 2024. This allows an individual to give up to $19,000 to any number of people during the year without having to file a gift tax return.
The annual exclusion is distinct from the lifetime estate and gift tax exemption, which is the total amount a person can transfer tax-free. For 2025, this exemption increases to $13.99 million per individual, up from $13.61 million in 2024. A married couple can shield double that amount, or $27.98 million, from transfer taxes.
Gifts made under the annual exclusion limit do not count against the lifetime exemption. For example, a person could give $19,000 to ten different people in 2025, transferring a total of $190,000, without using any of their $13.99 million lifetime exemption. For gifts made to a spouse who is not a U.S. citizen, a separate annual exclusion amount applies, which is $191,000 for 2025, up from $185,000 in 2024.
Provisions for Businesses and Specific Deductions
The Qualified Business Income (QBI) deduction allows owners of pass-through businesses to deduct up to 20% of their qualified business income. The taxable income thresholds that limit the deduction are adjusted annually. For 2025, the threshold is $197,300 for single filers and $394,600 for joint filers, compared to $191,950 and $383,900 in 2024. Above these income levels, the deduction may be limited, particularly for a specified service trade or business (SSTB).
The monthly tax-free limit for qualified transportation fringe benefits is also updated. In 2025, an employer can provide up to $325 per month for qualified parking and $325 per month for combined transit passes and commuter expenses, up from $315 in 2024. Amounts above these limits must be included in an employee’s taxable wages.
U.S. citizens or residents working abroad may be eligible for the foreign earned income exclusion, which allows them to exclude foreign earnings from U.S. income tax. For 2025, the maximum exclusion is $130,000, an increase from $126,500 in 2024. To qualify, a taxpayer must meet certain requirements, such as the bona fide residence or physical presence tests.
The IRS also updated figures for Archer Medical Savings Accounts (MSAs). For 2025, a qualifying high-deductible health plan (HDHP) must have an annual deductible for self-only coverage between $2,850 and $4,300, and for family coverage between $5,700 and $8,550. The annual out-of-pocket expenses cannot exceed $5,700 for self-only coverage or $10,500 for family coverage. For comparison, the 2024 deductible ranges were $2,800 to $4,150 (self-only) and $5,550 to $8,350 (family), with out-of-pocket maximums of $5,550 and $10,200.