The Internal Revenue Service announced today that the amount individuals can contribute to their 401(k) plans in 2025 has increased to $23,500, up from $23,000 for 2024.

The IRS today also issued technical guidance regarding all cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2025 in Notice 2024-80 PDF, posted today on IRS.gov.

Highlights of changes for 2025

The annual contribution limit for employees who participate in 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan is increased to $23,500, up from $23,000.

The limit on annual contributions to an IRA remains $7,000. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost‑of‑living adjustment but remains $1,000 for 2025.

The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan remains $7,500 for 2025. Therefore, participants in most 401(k), 403(b), governmental 457 plans and the federal government’s Thrift Savings Plan who are 50 and older generally can contribute up to $31,000 each year, starting in 2025. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2025.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase‑out ranges for 2025:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to between $79,000 and $89,000, up from between $77,000 and $87,000.
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $126,000 and $146,000, up from between $123,000 and $143,000.
• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range is increased to between $236,000 and $246,000, up from between $230,000 and $240,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
• The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $150,000 and $165,000 for singles and heads of household, up from between $146,000 and $161,000. For married couples filing jointly, the income phase-out range is increased to between $236,000 and $246,000, up from between $230,000 and $240,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.
• The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $79,000 for married couples filing jointly, up from $76,500; $59,250 for heads of household, up from $57,375; and $39,500 for singles and married individuals filing separately, up from $38,250.
• The amount individuals can generally contribute to their SIMPLE retirement accounts is increased to $16,500, up from $16,000. Pursuant to a change made in SECURE 2.0, individuals can contribute a higher amount to certain applicable SIMPLE retirement accounts. For 2025, this higher amount remains $17,600.
• The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most SIMPLE plans remains $3,500 for 2025. Under a change made in SECURE 2.0, a different catch-up limit applies for employees aged 50 and over who participate in certain applicable SIMPLE plans. For 2025, this limit remains $3,850. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in SIMPLE plans. For 2025, this higher catch-up contribution limit is $5,250.

Details on these and other retirement-related cost-of-living adjustments for 2025 are in Notice 2024-80 PDF, available on IRS.gov.

Source: IRS-2024-285, Nov. 1, 2024

The IRS is processing 400,000 claims from the pandemic-era employee retention credit (ERC) that represent about $10 billion of eligible filings, the agency said Thursday in a news release (IR-2024-263).

“In recent weeks, the IRS has made substantial progress in separating eligible claims from the wave of ineligible claims that have come in, and we continue working to refine our models to identify more eligible claims,” IRS Commissioner Danny Werfel said in the release.

To help speed processing, the IRS announced last month the opening of a consolidated claim process to help third-party payers and their clients resolve incorrect ERC claims.

In addition to processing valid claims, the IRS said it is denying improper ERC claims, intensifying audits, and pursuing civil and criminal investigations of potential fraud and abuse. The findings of an IRS review, announced in June, confirmed concerns raised by tax professionals and others that there was an extremely high rate of improper ERC claims in the IRS inventory.

ERC background

The ERC was designed to help certain businesses continue paying employees during the COVID-19 pandemic while their operations were either fully or partially suspended due to a government order or when they had a significant decline in gross receipts during the eligibility periods. It was generally available to eligible businesses from March 31, 2020, to Sept. 30, 2021, and to Dec. 31, 2021, for recovery startup businesses.

Voluntary disclosure program remains open 

The IRS reminded businesses that already received ERC payments to recheck eligibility requirements and consider the second Employee Retention Credit (ERC) Voluntary Disclosure Program (VDP) to resolve incorrect claims without penalties or interest.

The second VDP, which runs through Nov. 22, allows businesses to correct improper payments at a 15% discount and avoid future audits, penalties, and interest.

By Martha Waggoner

The Department of the Treasury and the Internal Revenue Service today issued proposed regulationsaddressing the federal tax classification of corporations or LLCs that are owned entirely by Indian Tribal governments (Tribes) and formed under the laws of the Tribes that own them. Generally, entities formed under the laws of a Tribe are known as Tribal law entities.

During discussions with the Treasury Tribal Advisory Committee, Tribes have requested guidance on the federal tax classification of Tribal law entities entirely owned by Tribes. The importance of Tribal sovereignty and self-determination that was raised during these discussions resulted in the Treasury and IRS proposing to amend the rules on entity classification. Under the proposed regulations, Tribal law entities that are entirely owned by Tribes would not be recognized as separate entities for federal tax purposes and would not be subject to federal income tax.

The proposed regulations would also clarify that Tribal law entities entirely owned by Tribes may receive the value of certain energy credits under the Inflation Reduction Act.

Until the final regulations are published in the Federal Register, Tribes and related entities may generally rely on these proposed regulations. The proposed regulations contain definitions and examples, including an example that illustrates the federal tax classification of an entity entirely owned by multiple Tribes.

Treasury and IRS encourage interested parties to submit comments on this guidance through Regulations.gov. Please indicate IRS and REG-113628-21 in the submission. Also, written comments may be mailed to CC:PA:01:PR (REG-113628-21) Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

A public hearing has been scheduled for Jan. 17, 2025.

Source: IRS-2024-261, Oct. 7, 2024

The Internal Revenue Service announced today that Direct File will be available for the 2025 tax filing season in double the number of states than last year’s pilot, and it will cover a wider range of tax situations, greatly expanding the number of taxpayers eligible to use the free e-filing service.

State and eligibility expansion

For the 2025 tax filing season, eligible taxpayers in 24 states will be able to use Direct File: 12 states that were part of the pilot last year, plus 12 new states where Direct File will be available in the upcoming filing season.

During the pilot last year, Direct File was available in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington State and Wyoming. For the 2025 tax filing season, Direct File will also be available in Alaska, Connecticut, Idaho, Kansas, Maine, Maryland, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania and Wisconsin.

In 2025, more than 30 million taxpayers in those 24 states will be eligible to use Direct File. Additional states could still join Direct File in 2025, and several states have expressed interest or announced that they will participate in Direct File in 2026.

In addition to doubling the number of states where Direct File will be available, the service will also cover a wider range of tax situations for the 2025 filing season. During the pilot last year, Direct File covered limited tax situations, including wage income reported on a W-2 form, Social Security income, unemployment compensation and certain credits and deductions. For the 2025 filing season, Direct File will support 1099’s for interest income greater than $1,500, retirement income and the 1099 for Alaska residents reporting the Alaska Permanent Fund dividend.

During the pilot, Direct File supported taxpayers claiming the Earned Income Tax Credit, Child Tax Credit and Credit for Other Dependents. This year, Direct File will also cover taxpayers claiming the Child and Dependent Care Credit, Premium Tax Credit, Credit for the Elderly and Disabled, and Retirement Savings Contribution Credits. In addition to covering taxpayers claiming the standard deduction and deductions for student loan interest and educator expenses, this year, Direct File will support taxpayers claiming deductions for Health Savings Accounts. Over the coming years, the IRS will gradually expand Direct File’s scope to support most common tax situations, focusing – in particular – on tax situations that impact working families.

“We’re excited about the improvements to Direct File and the millions more taxpayers who will be eligible to use the service this year,” said IRS Commissioner Danny Werfel. “Above all, our goal is to improve the experience of tax filing itself and help taxpayers meet their obligations quickly and easily. Direct File will be a critical part of achieving that goal as we expand and improve the service.”

Direct File service improvements

Direct File is a web-based service that works on mobile phones, laptops, tablets or desktop computers. It guides taxpayers through a series of questions to prepare their federal tax return step-by-step. Last year, thousands of Direct File users got help from IRS customer service representatives through a live chat feature in English and Spanish. Once taxpayers have completed their federal tax return, the Direct File system automatically guides them to state tools to complete their state tax filings.

For the 2025 filing season, Direct File will include new features to make filing taxes quicker and easier. Direct File users can try a new chat bot to help guide them through the eligibility checker. Live chat will again be available in English and Spanish, and users can opt into additional authentication and verification, which will allow customer service representatives to provide more information.

“User experience, both within the Direct File tool and the integration with state tax systems, will continue to be the foundation for Direct File moving forward,” Werfel said. “We will focus – first and foremost – on continuing to get it right. Accuracy and comprehensive tax credit uptake will be paramount concerns to ensure taxpayers file a correct return and get the refund to which they’re entitled.”

Direct File’s role in the tax system

Following a successful pilot during the 2024 tax filing season, where more than 140,000 taxpayers across 12 states used Direct File, the IRS undertook a comprehensive review of the service and its role in the broader tax system.

Taxpayers across the country told the IRS they want more no-cost electronic filing options. The IRS heard directly from hundreds of organizations across the country, more than 100 members of Congress, individual Direct File users and from those that are interested in using Direct File. Millions of taxpayers who did not live in one of the12 pilot states visited the Direct File website to learn more about the service or asked live chat assistors to make Direct File available in their state.

In May 2024, the IRS announced that Direct File would be a permanent tax filing option, and the service is working with all states interested in participating. In the coming years, Direct File will continue to be one option among many from which taxpayers can choose, and it will complement important options, such as preparation by tax professionals or through commercial software providers, who are critical partners with the IRS in delivering a successful tax system for the nation.

The IRS also noted another side effect of the Direct File pilot was increased attention on all free filing options, including an increase in usage of Free File. The IRS remains committed to the ongoing relationship with Free File, Inc., which has served taxpayers for two decades in the joint effort to provide free commercial software. Last spring, the IRS signed a five-year extension with industry to continue Free File. As the IRS works to expand Direct File, it will work to strengthen all free filing options for taxpayers, including Free File, the Volunteer Income Tax Assistance program (VITA) and the Tax Counseling for the Elderly program (TCE) – all of which saw increased usage and interest last year.

“Direct File is an important component of a stronger, more comprehensive tax system that gives taxpayers electronic filing options that best suit their needs,” Werfel said. “It is a critical tool in the IRS’ effort to meet taxpayers where they are, give them options to interact with us in ways that work for them and help them meet their tax obligations as easily and quickly as possible.”

Direct File will begin accepting tax returns when the filing season opens.

Source: IRS-2024-258, Oct. 3, 2024

The Internal Revenue Service today announced that Elizabeth Askey has been selected to serve as the Chief of the IRS Independent Office of Appeals (Appeals).

Askey will set strategy and oversee the operations of Appeals, which resolves tax controversies between taxpayers and the IRS without litigation. Askey has served as the Deputy Chief of Appeals since December 2022 and has been acting as the Appeals Chief since April, responsible for approximately 1,750 Appeals employees nationwide.

“Liz has a wide range of experience and expertise both inside and outside the IRS,” said IRS Commissioner Danny Werfel. “Her leadership will enhance and support the talented team of Appeals employees working with taxpayers every day to resolve tax controversies fairly and impartially without going to court.”

Appeals is independent of the IRS compliance functions, including the examination and collection areas that make tax assessments and initiate collection actions. Appeals’ mission is to resolve tax controversies without litigation on a basis that is fair and impartial to both the government and taxpayers.

Askey joined the IRS Office of Chief Counsel in 2019, where she served as Deputy Division Counsel (International) for the Large Business and International Division. Prior to joining the IRS, she spent nearly 30 years as a tax controversy and policy practitioner at several law and accounting firms and in private industry, where her focus was resolving administrative controversies in examinations and at Appeals.

Askey also served as an attorney-advisor and associate tax legislative counsel in the Office of Tax Policy at the Department of the Treasury from 1999-2002.

She received her Bachelor of Arts degree from Bryn Mawr College and her Juris Doctor degree from Harvard Law School.

Askey is a fellow of the American College of Tax Counsel and admitted to practice before the U.S. Tax Court, the U.S. Court of Federal Claims and the U.S. Court of Appeals for the Federal Circuit as well as the state bars of the District of Columbia, New York and Pennsylvania.

Source: IRS-2024-245, Sept. 23, 2024

$172 million recovered from 21,000 wealthy taxpayers who have not filed tax returns since 2017 in first six months of new initiative

Today, U.S. Secretary of the Treasury Janet L. Yellen and Commissioner of the Internal Revenue Service Danny Werfel are delivering remarks at the Austin, Texas, IRS campus to announce new milestones under Inflation Reduction Act initiatives to ensure wealthy individuals pay taxes owed, improve service for taxpayers through the Digital First Initiative and modernize foundational technology.

Ensuring high-income, high-wealth taxpayers pay taxes owed

• The IRS in February 2024 launched an initiative to pursue 125,000 high-income, high-wealth taxpayers who have not filed taxes since 2017. These are cases where IRS has received third party information—such as through Forms W-2 and 1099s—indicating these people received income between $400,000 and $1 million or more than $1 million, but failed to file a tax return. Prior to the Inflation Reduction Act, the IRS non-filer program ran sporadically since 2016 due to severe budget and staff limitations that did not allow these cases to be pursued. With new Inflation Reduction Act funding, the IRS now has the capacity to do this core tax administration work. In the first six months of this initiative, nearly 21,000 of these wealthy taxpayers have filed, leading to $172 million in taxes being paid.

• The IRS in the fall of 2023 launched a new initiative using Inflation Reduction Act funding to pursue high-income, high-wealth individuals who have failed to pay recognized tax debt, with dozens of senior employees assigned to these cases. This work is concentrated on taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt. The IRS was previously unable to collect from these individuals due to a lack of resources. After successfully collecting $38 million from more than 175 high-income, high-wealth individuals last year, the IRS expanded this effort last fall to around 1,600 additional high-income, high-wealth individuals. Nearly 80% of these 1,600 millionaires with delinquent tax debt have now made a payment, leading to over $1.1 billion recovered. This is an additional $100 million just since July, when Treasury and IRS announced reaching the $1 billion milestone.

Improving taxpayer service through the Digital First Initiative

With Inflation Reduction Act resources, the IRS is significantly improving taxpayer service in person, over the phone, and online. The IRS is working to deliver the same modern online experience that taxpayers experience with their bank or financial institutions. Using Inflation Reduction Act resources, the IRS has created and enhanced popular and convenient online tools that save taxpayers time and money, while also reducing phone calls, paper processes, and other burdens on IRS employees. For example, in Filing Season 2024, IRS updated the “Where’s My Refund?” tool to provide more detailed refund status information in plain language, increasing use by nearly 30%.

Thanks to Inflation Reduction Act resources, the IRS has launched more digital tools in the last two years than the previous 20 years, including:

• More than two dozen new features and enhancements to Individual and Tax Professional Online Account;
• The launch of Business Tax Account;
• The release of 30 digital mobile-adaptive forms;
• The ability for taxpayers to receive their refund status via a conversational hotline;
• A mobile-friendly web tool for Where’s My Refund; and
• Direct File, a new tool that allows taxpayers to file for free, directly with the IRS.

Through the Digital First Initiative, the IRS is pursuing a vision where taxpayers can do all their transactions with the IRS digitally if they prefer. At the core of that improved digital experience for taxpayers are enhancements to Individual Online Account. Thanks to funding from the Inflation Reduction Act, taxpayers can now:

• View the status of refunds and certain audits.
• Access a complete overview of their account information, including detailed historical data.
• Access identity protection services, a lien payoff calculator, and the ability to complete the pending installment agreement process using smartphones or tablets—all critical as taxpayers prepare for Filing Season 2025.
• Retrieve tax related information from a single source, including digital copies of notices and letters—with more than 170 different types of notices and letters currently available in their Online Account. The agency’s goal is to make an additional 98 notices available for digital viewing, reaching a total of 268 notices digitally available by the end of 2024.

Through the Simple Notice Initiative, the IRS is also redesigning up to 200 individual taxpayer notices to be shorter and clearer, reducing taxpayer frustration and the number of phone calls requiring live assistance, for Filing Season 2025. The IRS has completed 109 notices as of the end of July 2024.

Additionally, Tax Pro Online Account rolled out more self-service options for tax professionals, including easier navigation to secure two-way messaging where authorized tax professionals can digitally communicate with the IRS on behalf of their clients. The IRS is also continuing to expand the features within Business Tax Account, an online self-service tool for business taxpayers that now allows them to view and submit balance-due payments. The account is also now accessible in Spanish, with more translations planned.

Modernizing 65-year-old foundational technology to improve taxpayer service and better secure taxpayer data

• For 65 years, the IRS has relied on the same foundational technology for many of its critical systems, including the Individual Master File (IMF), which houses taxpayer data and feeds into key systems. The core technology, based on ALC and COBOL coding, has become a liability due to the diminishing pool of experts proficient in this legacy language.

• The IRS has reached a critical milestone in modernizing a core technology component of the Individual Master File, by porting the outdated Assembly-based codebase to Java, a more modern, more sustainable language. Reflecting the agency’s focus on technology best practices, this new system, Integrated Tax Processing Engine (ITPE), is now running simultaneously with IMF to verify accuracy of its data processing. The system’s data will be hosted in the Enterprise Data Platform, a modern, cloud-based system for managing data.

• Making taxpayer history available in a modern data environment is a key step toward the IRS implementing real-time data processing with platforms that will enable transactions to be processed more quickly, transparently, and securely. These improvements are a critical enabler for the IRS’s Digital First Initiative. For example, it will improve taxpayer service by allowing taxpayers and customer service representatives to access real-time account information in the future just as any bank or financial institution does. These improvements will also empower IRS to implement tax code changes and emergency benefit programs more quickly, while reducing the costs of maintaining IRS systems. This project was delayed for years due to underfunding.

Source: IRS-2024-233, Sept. 6, 2024