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Health Savings Account (HSA). Voluntary employee salary reduction contributions to a HSA for an individual cannot exceed $4,150 for 2024 and $4,300 for 2025. For a family it cannot exceed $8,300 for 2024 and $8,550 for 2025. If the HSA beneficiary is age 55 or older at the end of the year, the annual contribution limit is increased by $1,000.
Health Flexible Spending Arrangement (FSA). Voluntary employee salary reduction contributions to a health FSA cannot exceed $3,200 for 2024 and $3,300 for 2025. The amount that can be carried over to the following year is $640 ($660 for 2025) for health care FSAs (HFSA) and dependent care FSAs (DFSA).
HSAs, MSAs, FSAs and HRAs. After December 31, 2019, qualified medical expenses are no longer limited to medicines and drugs that are prescribed by a physician. Therefore, over-the-counter medicines and drugs can be reimbursed tax free. This includes menstrual care products, such as tampons, pads, liners, etc.
Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). For 2024, the total amount of payments and reimbursements under a QSEHRA cannot exceed $6,150 ($12,450 for family coverage). For 2025, this amount increases to $6,350 ($12,800 for family coverage.
Capital Gain and Qualified Dividend Maximum Tax Rates. The breakpoints no longer follow the tax brackets for regular income tax purposes. The breakpoints are as follows:
| Single Taxable Income | $0 to 47,025 maximum rate = 0% $47,026 to 518,900 maximum rate = 15% $518,901 and over maximum rate = 20% |
| MFJ or QW Taxable Income | $0 to 94,050 maximum rate = 0% $94,051 to 583,750 maximum rate = 15% $583,751 and over maximum rate = 20% |
| MFS Taxable Income | $0 to 47,025 maximum rate = 0% $47,026 to 291,850 maximum rate = 15% $291,851 and over maximum rate = 20% |
| HOH Taxable Income | $0 to 63,000 maximum rate = 0% $63,001 to 551,350 maximum rate = 15% $551,351 and over maximum rate = 20% |
| Estates and Trusts Taxable Income | $0 to 3,150 maximum rate = 0% $3,151 to 15,450 maximum rate = 15% $15,451 and over maximum rate = 20% |
The breakpoints for the 25% maximum rate for unrecaptured section 1250 gain, and the 28% maximum rate for 28% rate gain follows prior law. Thus, the 25% and 28% maximum rates apply when taxable income exceeds the 24% tax bracket for regular income tax purposes.
Energy Efficient Home Improvement Credit. Beginning in 2023, the Inflation Reduction Act (IRA) of 2022 renamed the credit to the Energy Efficient Home Improvement credit and extended it to include property placed in service after Dec. 31, 2022, and before Jan. 1, 2033. In addition, the IRA of 2022 increases the credit amount to 30% (previously 10%) of the sum of the amount paid or incurred by the taxpayer for qualified energy improvements installed during the year and the amount of the residential energy property expenditures paid or incurred by the taxpayer during that year. The lifetime maximum limit of $500 is changed to an annual limit of $1,200 with certain property limitations. In addition, there are separate annual limits of $600 for credits for windows and skylights, and $250 for exterior doors (with a total of $500 for all exterior doors). A $2,000 annual limit applies to amounts paid for specified heat pumps, heat pump water heaters, and biomass stoves and boilers.
Residential Clean Energy Credit. The residential clean energy credit includes solar, wind, geothermal and qualified battery storage. The IRA of 2022 extended the credit and increased the credit amount to the following:
30% for property placed in service after December 31, 2021, and before January 1, 2033
26% for property placed in service after December 31, 2032, and before January 1, 2034
22% for property placed in service after December 31, 2033, and before January 1, 2035
Clean Vehicle Credit. Prior to the IRA of 2022, a taxpayer could claim a credit for each new qualified plug-in electric drive motor vehicle placed in service during the tax year. The amount of the credit was $7,500. For tax years prior to 2023, the credit phased out after the manufacturer sold 200,000 vehicles. The IRA of 2022 renamed the credit to Clean Vehicle Credit and eliminated the number of vehicles stipulation (manufacturer sales) for vehicles sold after Dec. 31, 2022. The credit for new clean vehicles can be as high as $7,500. A qualified vehicle must have final assembly in North America (this includes specifications on the manufacturing and assembly of the battery), meet critical mineral requirements and have minimum battery capacity of seven kilowatt hours. Additionally, the credit requires the manufacturer’s suggested retail price (MSRP) for vans, SUVs, and trucks cannot exceed $80,000 ($55,000 for any other vehicle). Unlike the prior credit, the clean vehicle credit is limited by the taxpayer’s MAGI. Qualifying information can be found at irs.gov. The threshold amounts are:
$300,000 (MFJ, QW), $225,000 (HOH) and $150,000 (Single, MFS).
Credit for Previously Owned Clean Vehicles. The IRA of 2022 adds a credit for taxpayers who purchase a previously owned clean vehicle after December 31, 2022, and before January 1, 2033. The credit is the lesser of $4,000 or 30% of the vehicle’s sales price. The sales price is limited to $25,000 and the transaction must be through a dealer. The MAGI limitations are:
$150,000 (MFJ, QW), $112,500 (HOH) and $75,000 (Single, MFS).
A previously owned vehicle is a motor vehicle 1) with a model year that is at least two years earlier than the calendar year when the taxpayer acquires it, 2) where original use started with a person other than the taxpayer, 3) acquired in a qualified sale and 4) that meets the requirements applicable to vehicles eligible for the clean vehicle credit for new vehicles.
Alternative Fuel Refueling Property Credit The new law extends the credit through the end of 2032, and increases the credit limitation for business use property to $100,000. The new law also allows the credit for bidirectional charging equipment, such as an electric vehicle charging station that converts the DC electricity stored in the car batteries back to AC electricity to power the house in case of a power outage.
Research Credit. Beginning in 2023, the new law increases the amount of the research credit that small businesses can use against their payroll tax liability to $500,000.
Stay Vigilant Against Scams. The IRS urges taxpayers to be on the lookout for unexpected scam phone calls, text messages and emails from anyone claiming to be collecting on behalf of the IRS. Recent news about tax scams and consumer alerts are available at www.irs.gov/uac/tax-scams-consumer-alerts. Tax scams generated by new AI tools are especially troublesome because they look professionally composed and are specifically tailored to trick vulnerable taxpayers.
K-12 Illinois Instructional Materials and Supplies (Credit Code 5740)
The Instructional Materials and Supplies credit is available to eligible educators for qualified expenses paid during the taxable year. If you were an eligible educator in 2024, you can claim a credit up to $500 for qualified expenses you paid in 2024. If you and your spouse are filing jointly, and both of you were eligible educators in 2024 the maximum credit is $1,000.
Eligible Educator is a kindergarten through twelfth grade teacher, instructor, counselor, principal, or aide in a qualified school for at least 900 hours during a school year.
Materials and Supplies are instructional materials or supplies designated for classroom use in any qualified school.
Qualified Expenses include ordinary and necessary expenses paid in connection with books, supplies (including nonathletic supplies for courses of instruction in health or physical education), equipment (including computer equipment, software and services), and other materials used in the classroom. An ordinary expense is one that is common and accepted in your educational field. A necessary expense is one that is helpful and appropriate for your profession as an educator. An expense does not have to be required to be considered necessary.
Qualified School is a public school or non-public school located in Illinois.
Note: Home schools are not qualified schools.
Note: Qualified expenses do not include expenses paid for instruction in a home school.
