What’s New for US Federal Income Tax 2025 When You File in 2026
Tax Season 2025 is around the corner. If you earn U.S.-source income—or you’re a U.S. citizen living in Germany—you still file a U.S. federal income tax (Form 1040). For the 2025 tax year (filed in 2026), the IRS announced inflation updates that raise deductions and bracket thresholds, plus new limits you’ll see on retirement plans, HSAs, and mileage. Here’s what changed and how it can lower your U.S. federal income tax 2025.
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1) Bigger standard deduction & shifted brackets (inflation updates)
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Standard deduction (2025):
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Married filing jointly: $31,500
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Single / Married filing separately: $15,750
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Head of household: $23,600
These higher amounts mean more income is tax-free before rates apply. Bracket thresholds also moved up across all filing statuses, reducing “bracket creep.” IRS
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Why it matters (expats & military): If you don’t itemize, the larger standard deduction lowers your U.S. taxation even if you also use the Foreign Earned Income Exclusion or claim foreign tax credits.
2) Foreign Earned Income Exclusion (FEIE) is higher
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FEIE for 2025: $130,000 per qualifying person (up from $126,500). If both spouses qualify, each can exclude up to the limit. Remember you must meet the Physical Presence or Bona Fide Residence test and file Form 2555. IRS
Why it matters: U.S. citizens in Germany, contractors OCONUS, and military spouses working locally may reduce U.S. income tax using the FEIE (and possibly the foreign housing exclusion). Publication 54 remains your go-to guide. IRS
3) Retirement plan contribution limits (good news for savers)
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401(k), 403(b), TSP employee deferral (2025): $23,500; catch-up 50+ remains $7,500 (total $31,000).
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IRA (traditional & Roth) (2025): $7,500; catch-up 50+ $1,000 (unchanged).
Income phaseouts for IRA deductibility/Roth eligibility also shifted upward.
Why it matters (military & expats): Contributing to TSP/401(k) while OCONUS still builds U.S. retirement benefits and can lower U.S. taxes—just coordinate with FEIE/FTC rules to avoid unintended interactions.
4) HSA limits for those with HDHP coverage
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HSA (2025): $4,300 self-only / $8,550 family; catch-up 55+ $1,000. HDHP minimum deductibles/out-of-pocket maximums also increased. Fidelity
Why it matters: If you maintain HSA-eligible coverage (common for contractors or when stateside part-year), you can still get a U.S. deduction—even while abroad.
5) Standard mileage rates (2025)
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Business: 67.5¢/mile
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Medical/Moving: 21.5¢/mile
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Charitable: 14¢/mile (statutory)
Use the rate that applies to your situation (e.g., reservists’ qualified moving, business travel). IRS
6) 1099-K changes continue to phase in
The IRS is phasing in the lower third-party payment reporting threshold. For 2025 returns, expect broader reporting than in prior years (lower thresholds and more platforms issuing Forms 1099-K). The IRS has issued transition guidance and FAQs—watch for your platform’s year-end statements and keep clean records. IRS
7) Key expat & military reminders for 2025 filing in 2026
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Automatic extension to June 15 if you’re living abroad on April 15 (attach a statement); you can also extend to Oct 15. (Interest may still accrue.) IRS
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FEIE vs. Foreign Tax Credit (FTC): You can’t take FTC on income you exclude—model both to see which wins. IRS
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Foreign Housing Exclusion/Deduction: May reduce tax further if your housing costs exceed the base amount. (See Pub. 54 & Form 2555 instructions.) IRS
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PCS, state residency, and filing state returns: Many service members retain a “home of record” state; some states still require returns—run the rules before you assume no state tax applies.
Quick checklist (so you don’t miss money)
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New standard deduction & brackets → check your withholding/estimated tax. IRS
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FEIE $130,000 + housing → gather travel days and housing receipts. IRS
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Max your 401(k)/TSP and IRA where eligible.
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HSA contributions if on an HDHP. Fidelity
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Track mileage and expect possible 1099-K forms from platforms. IRS
Need help from Germany?
I specialize in American expat taxes and U.S. military returns in Europe—including FEIE, foreign housing, state residency, and PCS timing. If you want your U.S. taxes done right (and fast), book a 15-minute intro call and I’ll map the best route for your 2025 filing.
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