Upcoming Changes to the Tax Code in 2025: What Military Families Should Know

Merry Christmas Eve!

The tax landscape is set to change in 2025, and it’s essential for military families to stay informed. These changes could impact your financial planning, benefits, and overall tax liability. Here’s a quick breakdown of what to expect.

1. Expiration of Tax Cuts from the 2017 Tax Law

The Tax Cuts and Jobs Act (TCJA) of 2017 introduced several tax breaks for individuals and families, but many of these provisions are set to expire at the end of 2025. Key points include:

  • Standard Deduction: The higher standard deduction will revert to pre-2018 levels. For example, the deduction for married couples filing jointly will decrease, potentially increasing taxable income.

  • Child Tax Credit: The credit will drop from $2,000 per child to $1,000, and income thresholds for eligibility will lower.

2. Changes to Tax Brackets

If the TCJA provisions expire, tax rates for all brackets will rise. For instance:

  • The 12% bracket could return to 15%.

  • The 22% bracket might increase to 25%.

3. Impact on Military-Specific Benefits

Military families benefit from tax-free allowances, such as Basic Allowance for Housing (BAH) and combat pay. While these benefits remain unaffected, the higher tax brackets may affect overall household tax liability, especially for dual-income households or those with civilian side jobs.

4. Estate and Gift Tax Changes

The TCJA significantly increased the estate and gift tax exemption, which will be cut in half after 2025. This change could impact military families with significant assets or plans to transfer wealth.

What Can You Do to Prepare?

  1. Maximize Retirement Contributions

    • Contribute to tax-advantaged accounts like the Thrift Savings Plan (TSP), Roth IRAs, or traditional IRAs.

    • Military families benefit from tax-free combat pay, which can be contributed to a Roth IRA for tax-free growth.

  2. Plan for Higher Taxes

    • Use the next few years to adjust your withholding and tax planning strategies.

    • Consider consulting a tax advisor familiar with military benefits to help optimize your finances.

  3. Utilize Tax-Free Savings for Dependents

    • Look into 529 plans for education savings, which grow tax-free and can be a valuable tool for military families.

  4. Stay Updated

    • Keep an eye on developments in Congress, as lawmakers may choose to extend or adjust some TCJA provisions.

By staying informed and proactive, military families can minimize the impact of these changes and continue to thrive financially. Consider speaking with a financial counselor on base or a tax professional to ensure your family is well-prepared for the upcoming shifts.

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