IRS Revenue Procedure 2024-40 – 9 Key Tax Changes

Just recently, IRS released its Revenue Procedure 2024-40 where it introduced inflation-adjusted changes for the 2025 tax year across credits, deductions, and exemptions.

This revenue procedure has some important “relieves” designed to keep you up with the rising inflation. If you’re feeling the pinch of rising prices, you’re not alone—inflation has made everything from groceries to gas more expensive, and it’s impacted our taxes too.

The IRS recently released Revenue Procedure 2024-40, a lengthy document packed with technical jargon and tax codes that only a true tax pro could decode.

But don’t worry, we combed through every line of this tax-packed release so you don’t have to!

In simple terms, Revenue Procedure 2024-40 has adjusted things like tax brackets, credits, and deductions to keep up with inflation to help make sure you’re not paying more in taxes just because the cost of living has gone up.

Therefore, in this article, we’ll give you a rundown of all these tax changes in the IRS’s latest Revenue Procedure 2024-40. Just to make sure that you understand the nuances and implications of each tax change, we’ll also provide a real-life example so you can easily understand how these updates might impact you when filing your 2025 taxes.

Let’s get into the changes—and hopefully find some relief for your wallet this tax season! Here are the 9 important tax implications in the Revenue Procedure 2024-40 that every God-fearing US Tax payer should know about.

IRS Revenue Procedure 2024-40 – 9 Key Tax Changes That Every US Tax Payer Should Know

1. Tax Brackets Shift: Where Will You Fall in 2025?

Tax brackets have adjusted this year, with inflation-widened income thresholds across all filing statuses. This adjustment helps prevent “bracket creep,” where small salary increases due to inflation push you into higher tax brackets.

Let’s say, in 2024, a married couple filing jointly was in the 10% tax bracket up to $22,900 in income. For 2025, this bracket has expanded, applying to income up to $23,850.

Similarly, the threshold for the 24% tax bracket for heads of households has increased from $194,950 in 2024 to $197,300 in 2025.

Example

A married couple earning $100,000 would have paid 12% on the first $96,950 in 2024, but with the new 2025 threshold, they’ll enjoy this rate up to $96,950—paying less tax on more income, all because of the widened brackets.

2. Standard Deduction Boost: More Income, Less Taxed

The standard deduction has also increased, allowing taxpayers to shield more of their income. For example, in 2024, the standard deduction for married couples filing jointly was $29,200. In 2025, that amount is $30,000.

For heads of household, it has risen from $21,450 in 2024 to $22,500 in 2025, and for single filers, it’s up from $14,600 to $15,000.

This means that taxpayers who claim the standard deduction instead of itemizing can exclude even more income from taxation.

Example

For a single filer making $50,000, the 2024 deduction of $14,600 meant that only $35,400 was taxed. With the 2025 deduction increase to $15,000, only $35,000 of their income is subject to tax, potentially reducing their total tax liability.

3. Expanded Child Tax Credit and Earned Income Credit: More for Families

The Child Tax Credit (CTC) and Earned Income Credit (EIC) are critical support mechanisms for families, and both have been adjusted for 2025.

In 2024, the refundable portion of the Child Tax Credit was capped at $1,600; for 2025, it’s $1,700, providing eligible families a bit more in refundable credits.

For families with three or more children, the Earned Income Credit has increased from a maximum of $7,850 in 2024 to $8,046 in 2025.

Example

A single parent with three children who qualified for the maximum EIC of $7,850 in 2024 could now receive $8,046 in 2025. This increase helps qualifying families by providing additional financial support, covering essentials like groceries, school supplies, and other household costs.

4. Retirement Savings Contribution Limits Up: Build Your Nest Egg

The income phase-out limits for tax-favored retirement accounts have increased, allowing more taxpayers to qualify for contributions or deductions. In 2024, couples filing jointly faced income phase-outs for Roth IRAs starting at $218,000.

For 2025, this threshold has increased to $225,000, meaning a bit more income is allowed before these retirement account benefits phase out.

Example

A couple with an adjusted gross income of $220,000 could only make limited Roth IRA contributions in 2024, as they were above the phase-out threshold. In 2025, they’re still below the new threshold of $225,000, so they can now take full advantage of Roth IRA contributions.

5. Foreign Earned Income Exclusion Increase: More Relief for Expats

The Foreign Earned Income Exclusion (FEIE) allows U.S. taxpayers living abroad to exclude a certain amount of foreign income from U.S. taxes.

In 2024, the FEIE limit was $128,200; for 2025, it has increased to $130,000. This adjustment means expatriates can exclude more of their foreign-earned income, which can help them avoid double taxation.

Example

Imagine an American engineer working in Germany earning $125,000 annually. With the increased FEIE limit of $130,000 in 2025, all their income can be excluded from U.S. taxation, saving them a significant amount on their U.S. tax bill.

Previously, the 2024 limit of $128,200 covered slightly less, so this change offers extra relief for overseas taxpayers.

6. Annual Gift Tax Exclusion: Giving More Without the Tax Hit

The gift tax exclusion amount has increased to $19,000 per recipient for 2025, up from $17,000 in 2024.

This means that individuals can give away slightly more money tax-free, which can be especially helpful for those transferring wealth to family members without incurring tax consequences.

Example

In 2024, a grandmother who gifted each of her three grandchildren $17,000 didn’t incur any gift tax. In 2025, she can give each grandchild up to $19,000 tax-free, totaling $57,000—up from $51,000 in 2024. This increase helps families transfer more wealth without impacting the giver’s lifetime estate tax exemption.

7. Increase in Kiddie Tax Threshold for Minor Children’s Investment Income

he Kiddie Tax applies to unearned income for minor children, aimed at preventing families from shifting investment income to children to avoid higher taxes.

For 2025, the threshold of unearned income that a child can earn before triggering the Kiddie Tax remains at $1,350, aligning with the standard deduction for dependents.

Any unearned income above this amount will be taxed at the parents’ marginal tax rate, which is usually higher.

Example

If a minor earns $2,000 in investment income in 2025, $1,350 will not be taxed, while the remaining $650 will be subject to the Kiddie Tax at the parents’ tax rate.

This adjustment provides clarity on the threshold to help families better understand tax liabilities on children’s investments.

8. Increased Adoption Credit to Support Growing Families

To support families with adoption-related expenses, the Adoption Credit for 2025 has been raised. Families adopting a child with special needs can claim a credit up to $17,280, an increase from the previous cap of $15,950 in 2024.

For other adoptions, the maximum credit remains at $17,280 or the amount of qualified adoption expenses, whichever is lower.

The credit phases out for households with modified adjusted gross incomes over $259,190 and is fully phased out at $299,190.

Example

Suppose a family spends $20,000 on the adoption of a child with special needs in 2025. Under the new Adoption Credit limit in the IRS Revenue Procedure 2024-40, they can claim up to $17,280 as a tax credit. However, the rest of the $2,720 is not allowed to be included in the tax credit and the family cannot claim any relief on this extra amount

9. Higher Capital Gains Tax Exemption Limits on Investment Income

Capital gains tax rates have been adjusted to keep pace with inflation, allowing more income to fall within lower tax rate thresholds.

For married couples filing jointly, the 0% rate on capital gains applies to income up to $96,700 (up from $94,300 in 2024), while the 15% rate applies up to $600,050.

For single filers, the 15% rate applies to income up to $533,400, offering greater flexibility for investors to benefit from lower tax rates.

Example

A married couple with $90,000 in long-term capital gains in 2025 would pay 0% tax on that gain, as it falls within the 0% threshold of $96,700. This increased exemption limit helps investors retain more of their investment income.

Conclusion

The 2025 adjustments in IRS Revenue Procedure 2024-40 reflect inflationary trends, widening tax brackets, boosting credits, and increasing limits across deductions and exclusions.

These changes may seem small, but together they can significantly affect your taxes, savings, and financial planning.

With these new thresholds, every taxpayer—from families and retirees to expats and generous grandparents—can benefit from these updates, keeping more of their earnings while strategically managing their taxes for the year ahead.