Each year, the IRS updates tax brackets and various thresholds to account for inflation. Family Law Software is already prepared for the upcoming tax year.
Starting December 15, 2024, all new case files will automatically use 2025 as the current year for income tax calculations, support purposes, and financial projections.
After December 15, 2024, in the Cloud, existing case files will automatically update to use 2025 as the current year. In the Desktop software, you will see an option to update the tax year when you next open the file.
After that, if you would like to continue to use 2024 as the current year, you can set the year back to 2024. The way to do this is to go to Settings > Assumptions > “Start Year,” and enter “2024.”
You can also prevent the software from updating to 2025 the next time the file opens, by finding the checkbox at Settings > Assumptions > Start Year labeled “Automatically update Start Year,” and clearing it.
This blog post will discuss the tax changes you will see in 2025.
Even though they don’t take effect until 2025, you can see these changes today, by setting the Start Year to 2025 in Settings > Assumptions > Start Year.
Or just click “2025” at the top of the View/Edit Taxes report to see what taxes will be in 2025. (For Desktop software, you need release 446.26.01 or later.
Tax Bracket Adjustments
In 2025, the top tax rate remains at 37% for individual single taxpayers with incomes greater than $626,350 ($751,600 for married couples filing jointly).
The lowest rate is 10% for incomes of single individuals with incomes of $11,925 or less ($23,850 for married couples filing jointly). The tax brackets for 2025 are as follows:
37% for incomes over $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).
The Standard Deduction
The standard deduction is a set amount that can be deducted from total income, lowering the taxable income that is subject to taxation.
The standard deduction is based on filing status, age, and whether the taxpayer is legally blind or is claimed as another filer’s dependent.
As an alternative, the tax code allows taxpayers to itemize deductions in lieu of claiming the standard deduction.
Itemized deductions are a list of eligible expenses whose total is, for some taxpayers, higher than the fixed standard deduction. Taxpayers may claim the standard deduction or the total of itemized deductions, whichever method benefits them the most.
The standard deduction for single taxpayers and married filing separately has risen to $15,000 for 2025, an increase of $400 from 2024. For married couples who are filing jointly for the tax year of 2025, the standard deduction rises $30,000, an increase of $800 from tax year 2024.
As for head of household filers, the standard deduction will be $22,500 for tax year 2025, an increase of $600 from the amount for tax year 2024.
Exemptions
The 2017 Tax Act eliminated the deduction for personal exemptions starting in 2018. However, this provision is set to expire—or “sunset”—in 2026. Unless Congress intervenes before then, tax exemptions and many other provisions will revert to the 2017 law in 2026.
Earned Income Tax Credit
The Earned Income Tax Credit is a refundable tax credit that helps low-income to moderate-income families at tax time. Many working families and individuals qualify for this tax credit.
The maximum Earned Income Tax Credit for a family of 3 or more children in 2025 has increased to $8,046, an increase from $7,830 for tax year 2024.
IRS Retirement Plan Annual Limits
The IRS announced a marginal increase in the annual employee deferral limit for workplace retirement plans, raising it to $23,500 up from $23,000 for 2024. This applies to plans such as 401(k)s, 403(b)s, governmental 457 plans, and the federal government’s Thrift Savings Plan. For participants aged 50 and older, catch-up contributions will remain at $7,500, bringing their total contribution limit for 2025 to $31,000.
The big news is a new Super catch-up contribution, beginning January 1, 2025. Starting in 2025, employees aged 60 to 63 who participate in the workplace retirement plans mentioned above will have a higher catch-up contribution limit. The new limit is $11,250, up from the previous $7,500.
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) functions as a separate, parallel tax system designed to prevent high-income taxpayers from excessively reducing their tax liability through deductions.
Tax liability is calculated under both the regular tax system and the AMT, with the taxpayer required to pay whichever amount is higher.
For tax year 2025, AMT exemption amounts are as follows:
- Unmarried individuals: $88,100, with a phase-out beginning at $626,350.
- Married individuals filing separately: $68,650, with a phase-out at $626,350.
- Married couples filing jointly: $137,000, with a phase-out starting at $1,252,700.
In Family Law Software under Reports> View Edit Taxes, if the tax calculated under the regular system is higher, then the tax computed under the AMT system remains invisible.
However, if the tax calculated under the AMT system is higher, the distance from the regular tax to the Alternative Minimum Tax is labeled on the tax report as “the Alternative Minimum Tax.”
Family Law Software is your up-to-date solution for complete and accurate tax calculations, no matter how simple or how complex the case.
And the software is always up to date with the latest tax changes.
Helpful Resources:
IRS Tax Inflation Adjustments for Tax Year 2025, https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025
IRS 401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000, https://www.irs.gov/newsroom/401k-limit-increases-to-23500-for-2025-ira-limit-remains-7000