2025 Tax Updates: New Limits, New Laws, and What to Expect This Season

Each year, the IRS releases its new thresholds for standard deductions and allowances, along with an update on its preparedness for the upcoming tax season. While that last part is often open to interpretation, we want to cut through the noise and provide the concrete updates that matter most to our expatriate American clients.

Here is what you need to know for the year ahead.

Key Updates for Expats

The Foreign Earned Income Exclusion (FEIE)

For the 2025 tax year, the FEIE has been increased to **$130,000** (up from $126,500 in 2024). This exclusion remains a primary tool for reducing US tax liability, particularly for those living in lower-tax jurisdictions. For our clients in Germany (a high-tax jurisdiction), the Foreign Tax Credit often remains the better option, but the FEIE is still a vital number to know.

• Married Filing Jointly (MFJ): Couples can deduct up to 2x this amount—**$260,000** for 2025—provided each spouse generates that earned income.

Exchange Rates for FBAR

While the IRS has not yet updated its central list, the Treasury Department has released the official exchange rate for December 31, 2025: 0.8510 EUR / USD.

This is the rate most of us in Germany will use to convert our maximum account balances when filing the Report of Foreign Bank and Financial Accounts (FBAR) for the 2025 tax year.

• Reminder: The FBAR is officially due April 15, but Americans abroad receive an automatic six-month extension to **October 15**.

Permanent Tax Rates

The tax rates originally set by the Tax Cuts & Jobs Act of 2017—which were set to expire—have been permanently extended. Similarly, the Alternative Minimum Tax (AMT) exemption amounts have been locked in permanently. These changes were codified in the "One Big Beautiful Bill" signed last year, a legislative priority of the current administration.

The Service Landscape: What to Expect from the IRS

Beyond the numbers, the operational reality at the IRS has changed significantly due to the Department of Governmental Efficiency (DOGE) initiatives. Following the last budget cycle, the agency has seen a dramatic reduction in resources, shedding over 25% of its workforce in 2025 alone.

Combined with the friction from the late-2025 government shutdown and ongoing budget uncertainties, we are seeing noticeable delays in agency responses. Inquiries and calculation corrections that used to take weeks are now taking months.

The Good News:

For taxpayers who can e-file and have straightforward returns, processing should remain relatively timely, as these returns are largely handled by automated IT systems.

Peace of Mind: Audit Protection

Given the shifting landscape, audit protection is more valuable than ever. We are proud to continue our partnership with Protection Plus to provide robust defense for our clients—at no additional cost to you.

While usually operating in the background, we want to highlight exactly what this coverage means for you this year:

• $1 Million in Audit Defense: Protection Plus covers up to $1 million in services to resolve an audit for a timely filed return.

• Expert Support: If the IRS raises a flag, you aren't facing it alone.

See below for a further overview of the service provided by Protection Plus:

We look forward to supporting you through another filing year and navigating these changes together.