February 2025┃Tax Changes to be Aware of
For the 2024 tax year (the returns you’re filing in 2025), the IRS has introduced a mix of inflation adjustments and other rule changes that may affect your tax filing.
Here are seven updates to be aware of while working on your 2024 return.
1. 2024 Child Tax Credit
The maximum Child Tax Credit (CTC) remains $2,000 per qualifying child under 17. However, the refundable portion has increased from $1,600 to $1,700, allowing families with lower tax liabilities to receive up to $1,700 back, even if they owe no taxes.
Key Details:
- Credit phases out for single filers at $200,000 and joint filers at $400,000
- Children must be under 17, be your dependent, and meet citizenship requirements
- No advance monthly payments will be issued
- The credit is partially refundable, reducing your tax bill and potentially providing a refund
While Congress previously discussed expanding the child tax credit, no changes were passed for 2024. However, lawmakers may revisit potential enhancements in future tax legislation, which could impact tax years 2025 and beyond. Without congressional action, the credit is set to decrease to $1,000 per child after 2025.
2. IRS 1099-K threshold 2024
The IRS has once again adjusted the 1099-K reporting threshold, impacting millions of taxpayers who receive payments through third-party networks like PayPal, Venmo, Square, Stripe, and Cash App.
Key Details:
- The threshold for receiving a Form 1099-K has dropped from $20,000 and 200 transactions to just $5,000, with no minimum transaction requirement.
- More people will receive 1099-K forms this year from platforms such as Etsy, eBay, StubHub, and other payment processors.
- Check your form for accuracy—if there are discrepancies, contact the payment platform that issued it.
- This change is part of the IRS’s gradual phased implementation of new reporting rules under the American Rescue Plan Act.
- The threshold is expected to drop further to $2,500 in 2025 and potentially $600 in 2026, though future changes remain uncertain with the new Republican-led Congress and White House.
Regardless of whether you receive a 1099-K, the IRS requires all taxable income to be reported on your federal tax return.
3. Free File Taxes
The IRS Free File program provides eligible taxpayers with free access to trusted tax preparation services for filing their federal income tax returns. This program differs from the new Direct File option, which has separate eligibility requirements.
Who Can Use IRS Free File?
- Available to taxpayers with an adjusted gross income (AGI) of $84,000 or less—a $5,000 increase from last year’s limit.
- Works through IRS-approved tax prep providers, each with their own eligibility rules and offerings.
- Open for the 2024 tax season as of January 10.
If you haven’t filed your taxes yet and meet the income requirements, you can visit the IRS Free File website and use the online lookup tool to find the right service for you.
4. Tax Brackets
Federal income tax rates are based on tax brackets that adjust annually for inflation. This means your tax rate may change each year depending on your income, potentially placing you in a higher or lower bracket.
With tax season now underway, it’s important to know where you fall. The good news? Thanks to inflation adjustments, tax brackets for 2024 are slightly more favorable than last year. This could mean lower taxes or a reduced portion of your income being taxed at higher rates.
Make sure to check the latest tax brackets to understand how they apply to your situation before filing your return.
5. 2024 Standard Deduction
When preparing your federal income tax return, deciding whether to take the standard deduction or itemize your deductions is important.
The standard deduction is a fixed dollar amount that reduces your taxable income, whereas itemized deductions can also lower your taxable income; the amount varies and is not predetermined. Most taxpayers claim the standard deduction.
With tax season starting, it’s good to know the standard deduction amounts, which, due to adjustments for inflation, are higher than last tax year if you haven’t already.
6. IRS Direct File Expands for 2024
The IRS has expanded Direct File, its free, in-house tax filing system, for the 2024 tax season. After a successful pilot program last year in 12 states, the service is now available in 25 states for taxpayers with relatively simple federal tax returns.
What’s New?
- Wider Availability: More than 30 million taxpayers may now qualify.
- No-Cost Filing: Direct File allows eligible individuals to file directly with the IRS, saving time and money.
If you have a straightforward tax situation and live in a participating state, Direct File could be a convenient and cost-effective option this filing season.
7. Extended Tax Deadlines for Disaster-Affected Areas
In 2024, the U.S. faced severe natural disasters, including Hurricane Helene—a devastating Category 4 hurricane—and wildfires in California, leading to widespread damage and loss. In response, the IRS has issued multiple tax deadline extensions for affected regions, giving impacted taxpayers additional time to file returns, pay taxes, and meet other IRS obligations without penalties.
Why These Extensions Matter:
- Extra Time for Document Recovery: Helps taxpayers replace lost or damaged tax records.
- Financial Relief: Eases the burden of tax obligations while dealing with property damage, displacement, or personal hardship.
- Prevents Additional Strain: Ensures those recovering from disasters aren’t penalized for missing deadlines.
Some extensions push deadlines well into 2025, providing much-needed relief. If you live in a federally declared disaster area, check with the IRS or your tax professional to confirm if you’re eligible for an extension.
Make sure to review these updates carefully, and consult with your tax professional if needed to ensure you’re taking full advantage of the changes.
Staying ahead of these updates can help you minimize stress and your potential tax liability this tax season.
We hope you have a great month ahead!