Change is in the wind. And when it comes to the way your IRS debt is managed by the federal government, there’s a lot of change to stay on top of.
For virtually all taxpayers in the US, paying federal tax on income is a part of life. So, if you’re one of the nearly 154 million people who will have a tax bill this year, the information contained here will apply to you. Knowing what’s coming could save you thousands in fees, penalties, or additional tax liability.
So keep reading, because we’re breaking down the most significant 2025 federal tax changes that could have an impact on your inevitable debt to the IRS.
Important note: As you make your way through this article, keep in mind that everyone’s tax debt situation is different, and knowing what’s best for your individual situation requires expert analysis by professionals who know the tax code. Contact us to learn more.
Changes in Tax Rates and Brackets
One of the most significant tax changes taxpayers should prepare for is the potential shift in federal income tax rates and brackets.
Many provisions of the Tax Cuts and Jobs Act (TCJA)—which lowered tax rates across income levels—are set to expire at the end of 2025, unless Congress extends them or enacts new legislation.
Potential changes in 2025 include the following:
Higher Tax Rates – The TCJA reduced individual tax rates, with the top rate dropping from 39.6% to 37%. If the law expires, the top rate could return to 39.6%, and lower brackets may also increase.
Brackets Adjusting Upward – Income thresholds for tax brackets may shift, potentially placing some taxpayers in higher tax brackets, increasing their tax burden.
‘Marriage Penalty’ Modifications – The TCJA helped reduce the so-called “marriage penalty” by aligning brackets more favorably for married couples. If pre-TCJA rules return, some married couples may face higher taxes than if they filed separately.
Impact on Taxpayers with IRS Debt
If tax rates increase, taxpayers with existing IRS debt may see a higher tax liability in 2025, making it harder to catch up on past-due amounts.
Additionally, some taxpayers use their tax refunds to pay down IRS debt. If tax rates rise and deductions decrease, refunds could shrink, making it more difficult to settle outstanding balances.
Employees and self-employed individuals may need to adjust their withholdings or estimated payments to avoid accumulating more IRS debt due to higher rates.
What You Can Do Now
Take these steps now to get ahead of these possible changes coming in 2025:
- Review Your Current Tax Bracket: Understanding where you stand now can help you plan for potential increases.
- Increase Payments Toward IRS Debt: If you’re on an installment agreement, consider making extra payments before the changes take effect.
- Consult Traxion Tax for expert assistance: If tax brackets increase, you may need to adjust withholding, deductions, or your overall tax strategy to avoid future debt.
Changes to Standard and Itemized Deductions
Also coming in 2025 is the potential expiration of the higher standard deduction introduced by the TCJA.
If no new legislation extends these provisions, many taxpayers may see a shift in how they deduct expenses on their tax returns, which could affect their ability to manage IRS debt.
Potential changes in 2025 may include:
Lower Standard Deduction – The TCJA nearly doubled the standard deduction, reducing the number of taxpayers who itemized deductions. If the pre-TCJA rules return, the standard deduction for single filers could drop from around $13,850 (2023 levels) to approximately $6,500 (pre-TCJA levels).
The standard deduction for married couples filing jointly could drop from $27,700 to around $13,000.
Return of Personal Exemptions – Before the TCJA, taxpayers could claim personal exemptions (around $4,050 per person in 2017). If restored, this could provide some relief for larger households.
Changes to Itemized Deductions – The TCJA limited or eliminated many deductions, such as the
State and Local Tax (SALT) Deduction Cap, which is currently capped at $10,000. This cap may be lifted or adjusted.
Mortgage Interest Deduction – The limit could return to pre-TCJA levels, allowing interest on mortgages up to $1 million (instead of $750,000).
Miscellaneous Deductions – Deductions for unreimbursed employee expenses and tax preparation fees—eliminated under TCJA—could be restored.
Impact on Taxpayers with IRS Debt
Smaller deductions could mean higher taxable income. If the standard deduction drops and itemized deductions don’t fully compensate, some taxpayers may owe more in taxes, making it harder to manage IRS debt.
Taxpayers who previously relied on the higher standard deduction may now need to track deductible expenses more carefully, while those used to larger deductions may need to adjust withholding or estimated payments to prevent new tax debt.
What You Can Do Now
Start planning for potential tax increases now. If the standard deduction decreases, work with a tax professional to estimate how much more you may owe.
Track your deductible expenses, and if itemizing becomes beneficial, keep detailed records of medical expenses, mortgage interest, and state taxes.
Consider paying IRS debt down before changes take effect. If you anticipate a higher tax burden in 2025, making extra payments on IRS debt now could help you stay ahead.
Tax Credits, IRS Penalties, and Debt Resolution Options
Upcoming changes to tax credits, IRS penalties, and debt resolution programs could significantly impact taxpayers with existing IRS debt. As 2025 continues, staying informed about these updates is crucial for those looking to manage or resolve their tax liabilities effectively.
Potential Changes in Tax Credits
The TCJA temporarily increased the Child Tax Credit (CTC) from $1,000 to $2,000 per child and made more of it refundable. If these provisions expire, families may receive a smaller credit, reducing their refunds or increasing their tax liability.
Also, If TCJA provisions sunset, Earned Income Tax Credit (EITC) eligibility rules and credit amounts may revert to pre-2018 levels, providing less relief to lower-income taxpayers.
Other credits at risk include energy efficiency credits and education credits.
IRS Penalties and Interest Rates
The IRS adjusts penalties and interest rates based on inflation and policy changes. If tax rates increase, failure-to-pay and failure-to-file penalties could become a greater burden for those with outstanding balances.
Another consideration is the fact that interest accrues daily on unpaid IRS tax debt. If tax changes result in higher outstanding balances, taxpayers may see higher interest charges over time.
Updates to IRS Debt Resolution Programs
2025 federal tax changes could impact how these common debt resolution programs operate:
Fresh Start Program – The IRS Fresh Start Initiative, which makes it easier for taxpayers to qualify for installment agreements and Offers in Compromise (OIC), may see adjustments. If budgetary constraints arise, the IRS could tighten eligibility criteria for debt relief programs.
Offer in Compromise (OIC) – The ability to settle tax debt for less than the full amount owed depends on IRS policy. If economic conditions shift, the IRS may become stricter in approving OIC requests.
Installment Agreement Changes – The IRS may adjust income thresholds or terms for payment plans, affecting how taxpayers can structure their debt repayments.
What Taxpayers Should Do Now
If credits decrease in 2025, taxpayers should take full advantage of existing credits while they are still available.
To prevent accumulating penalties and interest, taxpayers with IRS debt should prioritize timely payments or explore resolution options now.
Lastly, if you qualify for an Offer in Compromise or a payment plan, applying as soon as possible may increase your chances of approval under current rules.
Looking Forward: Key Actions to Take
The federal tax changes set for 2025 could have a major impact on taxpayers, especially those with existing IRS debt. With potentially higher tax rates, lower deductions, reduced tax credits, and stricter IRS penalties, staying ahead of these changes is crucial to avoiding additional financial strain.
To protect yourself from unexpected tax liabilities, now is the time to review your tax situation, adjust your withholdings, and explore debt resolution options before these changes take effect.
If you have IRS debt or are concerned about how these tax changes might affect you, Traxion Tax is here to help. Our team of experts specializes in IRS debt resolution, tax planning, and navigating complex tax laws to ensure you stay compliant and minimize your financial burden.
Contact us now to get started—because the best time to resolve your tax debt is before the rules change.