The U.S. budget deficit shrank by $41 billion to $1.775 trillion in the 2025 fiscal year, despite a $118 billion increase in revenues from President Donald Trump's tariffs, the Treasury Department reported on Thursday.

The results for the year ended September 30, which include nearly nine months of Trump's second term in the White House, compared to a $1.817 trillion deficit in fiscal 2024. It was the first time the annual deficit had fallen since 2022, when the unwinding of COVID-19 relief programs brought spending down.

The smaller deficit was aided by a record $195 billion in net customs receipts for the fiscal year, an increase of $118 billion from the prior year as new Trump tariffs rolled in.

Customs receipts in September reached a new record high of $29.7 billion, but the pace of increase slowed from August, when $29.5 billion was collected.

Total receipts for fiscal 2025 were a record $5.235 trillion, up $317 billion, or 6%, from the $4.918 trillion in fiscal 2024.

Fiscal 2025 outlays also were a record at $7.01 trillion, up $275 billion, or 4%, from the $6.735 trillion in the prior fiscal year.

TREASURY REPORTS RECORD SURPLUS FOR MONTH OF SEPTEMBER

A U.S. Treasury official said the department calculated an estimated deficit-to-GDP ratio of 5.9% for fiscal 2025, but declined to say what GDP estimate was used. This figure compares to an actual 6.3% deficit-to-GDP ratio for fiscal 2024.

For the 2025 fiscal year's final month of September, the Treasury reported a record surplus of $198 billion, up $118 billion, or 147%, from the same month in the prior year. September is often a month of surplus due to quarterly tax filing deadlines for companies and individuals.

Receipts last month were up $17 billion, or 3%, to $544 billion, while outlays were down $101 billion, or 23%, to $346 billion.

The latest monthly surplus was boosted by a $131 billion cut to the Department of Education budget that was mandated in the spending and tax-cut bill passed by the Republican-controlled Congress in July. For September, the education outlays were $123 billion lower than in September 2024.

For the full 2025 fiscal year, the Department of Education suffered the biggest cut in outlays, down $233 billion, or 87% from the prior year to just $35 billion.

That cut and the higher customs receipts masked continued increases in outlays for the Social Security retirement plan, the Medicare and Medicaid healthcare programs and interest on the U.S. federal debt.

The interest expenditure reached a record $1.216 trillion for the full fiscal year, up $83 billion, or 7%, from fiscal 2024, making it the second-largest expenditure item after Social Security. Expenses for that program reached $1.647 trillion, up $127 billion, or 8%, from the prior fiscal year.