2024 And 2025 Tax Updates: What You Need To Know Before Filing
Tax season may not be everyone's favorite time of year, but understanding the latest updates can make a big difference in how much you owe or get back. So, as we approach 2025, it is essential to stay ahead of the latest tax updates from the IRS. Changes to tax brackets, standard deductions, and reporting thresholds can impact how much you owe or receive as a refund. For the 2025 tax year (filed in 2026), the IRS has introduced several adjustments that could affect taxpayers at every income level.
These changes are designed to account for inflation, ensuring taxpayers are taxed reasonably relative to the rising cost of living. Key updates include increases to tax bracket thresholds, higher standard deductions, and new rules around income reporting from payment platforms like Venmo, PayPal, and Cash App.
This article looks at the 2024 and 2025 tax updates and how you can prepare for them now. These updates could significantly impact your finances if you are a salaried employee, self-employed, or with a side hustle.
IRS Tax Brackets Explained (And How They Have Changed For 2025)
One of the most important updates to be aware of is the adjustment to tax brackets. The U.S. tax system is "progressive," meaning you do not pay the same tax rate on all of your income. Instead, your income is divided into portions, each taxed at a different rate. As your income increases, so does the rate at which the next portion is taxed.
2025 Tax Brackets For Single Filers
10% on taxable income up to $11,925
12% on taxable income from $11,926 to $48,475
22% on taxable income from $48,476 to $103,350
24% on taxable income from $103,351 to $197,300
32% on taxable income from $197,301 to $250,525
35% on taxable income from $250,526 to $626,350
37% on taxable income over $626,351
Example Of How It Works
Let's say you have a taxable income of $80,000. Here is how it breaks down using the 2025 brackets:
The first $11,925 is taxed at 10%, which equals $1,192.50.
The next portion, $11,926 to $48,475 (or $36,550), is taxed at 12%, which equals $4,386.00.
The portion from $48,476 to $80,000 (or $31,525) is taxed at 22%, which equals $6,935.50.
Total tax owed = $1,192.50 + $4,386.00 + $6,935.50 = $12,514.00
This system ensures that only the portion of income exceeding a bracket threshold is taxed at a higher rate, not the entire income. For instance, even someone earning millions still pays only 10% on their first $11,925.
The good news for 2025 is that tax brackets have been adjusted upward for inflation. This upward adjustment means more of your income will be taxed at lower rates compared to previous years, reducing your overall tax bill if your income has stayed the same.
Standard Deduction
When filing taxes, taxpayers can choose between the standard deduction or the itemized deduction to reduce their taxable income. The standard deduction is the more straightforward option: you subtract a fixed amount from your income, lowering your taxable income and reducing your tax bill. Most people prefer it because it is concise and works best if the standard deduction is larger than your itemized deductions.
2025 Standard Deduction Amounts
Single Filers: $15,000 (up from $14,600)
Married Filing Jointly: $30,000 (up from $29,200)
Heads of Household: $22,500 (up from $21,900)
Why This Matters
For 2025, the IRS has increased the standard deduction by roughly 2.7% across all filing statuses. This increase in the standard deduction means taxpayers will be able to deduct more from their income. For example, if an unmarried taxpayer has an income of $100,000, they could subtract $15,000 from their income, bringing their taxable income down to $85,000. For 2024, an unmarried taxpayer could only deduct $14,600, making their taxable income $85,600.
Choosing the standard deduction does limit eligibility for certain individual or itemized deductions. However, you can still deduct some expenses, regardless of which option you choose - like student loan interest or IRA contributions. Ultimately, the goal is to pick the option that significantly reduces taxable income and minimizes your tax bill.
What To Know About Form 1099-K (Changes In 2025 And 2026)
Pay close attention to this change if you use apps like PayPal, Venmo, Cash App or sell goods on platforms like eBay or Etsy. Form 1099-K is a tax form used to report payments you receive for selling products, providing services, or renting property. If you receive payments through these platforms, you may now be required to report them as taxable income.
Threshold Changes For Form 1099-K
2024: Threshold is $5,000
2025: Threshold drops to $2,500
2026 and Beyond: Threshold drops to $600
What This Means
Suppose you received over $2,500 in 2025 from selling items or providing services. In that case, you will receive a Form 1099-K from the payment platform (like PayPal) and must report that income on your tax return.
What Does Not Count
Payments from friends and family (like birthday gifts or reimbursements) are not considered taxable.
Personal payments like splitting a restaurant bill with friends do not count toward the threshold.
To avoid surprises, track the payments you receive through these platforms. If you run a small business, side hustle, or sell items online, you will need to report this income. If you are still determining whether to track a specific payment, ask yourself: Did I sell a product or provide a service? If the answer is yes, it is likely taxable.
Key Takeaways For 2025
Here is a quick summary of the most important changes for 2025:
IRS Tax Brackets
Brackets have been adjusted for inflation, meaning more of your income will be taxed at lower rates.
Example: If you earned $80,000 in 2024, you would have been taxed on $48,476 to $80,000 at 22%. But in 2025, you will be taxed at a slightly lower rate on that same income range, saving you money.
Standard Deduction
The standard deduction increases for all filers in 2025, reducing taxable income by an extra $400 to $800, depending on your filing status.
Form 1099-K Reporting
The income threshold for reporting payments from apps like Venmo, PayPal, and eBay will drop from $5,000 in 2024 to $2,500 in 2025.
In 2026, it will drop even further to $600, meaning more side hustlers, small business owners, and online sellers will have to report these payments as taxable income.
What Should You Do To Prepare For The 2025 Tax Year?
Check Your Tax Withholding: Ensure enough tax is withheld from your paychecks so you do not owe too much when filing.
Track Side Income: If you use apps like Venmo, PayPal, or eBay for business, start tracking payments now. You should know how much you have earned when the IRS sends you a Form 1099-K.
Keep Your Tax Documents Organized: Track receipts for eligible deductions (like charitable donations) and keep all tax documents, such as W-2s, 1099s, and mortgage statements, in one place.
File Early: If you qualify for deductions, file early to avoid delays and reduce the risk of tax fraud.
Conclusion
These changes to tax brackets, standard deductions, and Form 1099-K reporting could significantly impact your finances. If you understand how these changes work, you will be better positioned to maximize your tax refund or reduce the amount you owe.
With the standard deduction increase, you may pay less in taxes, while the upward adjustment to tax brackets allows more of your income to be taxed at lower rates. However, if you use Venmo, PayPal, or other payment platforms for side hustles, you will need to keep track of payments to ensure you are prepared for the new reporting thresholds.
By taking action now, like adjusting your withholding and tracking payments, you will be ready to file your taxes confidently. For more personalized advice, consider speaking with a tax professional who can help you make the most of your situation. Staying informed is the best way to stay ahead. Take your time with tax season; start planning now!