According to Lagradaonline, The federal government has announced a series of financial changes for the upcoming year. The Social Security Administration has released its long-awaited Cost-of-Living Adjustment (COLA), and the Internal Revenue Service (IRS) has updated its tax income brackets and other payments.
IRS Changes to Tax Income Brackets
The IRS has made adjustments to tax income brackets to reflect the devaluation of money and the rising cost of living. However, some rates remain unchanged:
- The top tax rate of 37% will continue to apply to single filers earning over $626,350 and married couples filing jointly with incomes exceeding $751,600.
Updated Tax Brackets for 2025
For Married Couples Filing Jointly and Surviving Spouses
| Taxable Income Range | Tax Calculation |
|---|---|
| Under $23,850 | 10% |
| $23,850 to $96,950 | $2,385 plus 12% of the excess over $23,850 |
| $96,950 to $206,700 | $11,157 plus 22% of the excess over $96,950 |
| $206,700 to $394,600 | $35,302 plus 24% of the excess over $206,700 |
| $394,600 to $501,050 | $80,398 plus 32% of the excess over $394,600 |
| $501,050 to $751,600 | $114,462 plus 35% of the excess over $501,050 |
| Over $751,600 | $202,154.50 plus 37% of the excess over $751,600 |
For Unmarried Individuals
| Taxable Income Range | Tax Calculation |
|---|---|
| Under $11,925 | 10% |
| $11,925 to $48,475 | $1,192.50 plus 12% of the excess over $11,925 |
| $48,475 to $103,350 | $5,578.50 plus 22% of the excess over $48,475 |
| $103,350 to $197,300 | $17,651 plus 24% of the excess over $103,350 |
| $197,300 to $250,525 | $40,199 plus 32% of the excess over $197,300 |
| $250,525 to $626,350 | $57,231 plus 35% of the excess over $250,525 |
| Over $626,350 | $188,769.75 plus 37% of the excess over $626,350 |
Real-Life Example
For instance, using New York’s median household income of $81,386 in 2022, a couple filing jointly could expect to owe approximately $9,289 in federal taxes. This figure is calculated by applying the different rates to portions of their taxable income.
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The standard deduction for single filers and married individuals filing separately will rise to $15,000 in 2025, an increase of $400 from the previous year. For married couples filing jointly, the standard deduction will increase by $800, reaching $30,000.
Changes to the Earned Income Tax Credit (EITC)
The IRS has also updated the Earned Income Tax Credit. The following table summarizes the credit amounts based on qualifying children:
| No Qualifying Children | 1 Qualifying Child | 2 Qualifying Children | 3+ Qualifying Children | |
|---|---|---|---|---|
| Earned Income | $8,490 | $12,730 | $17,880 | $17,880 |
| Maximum Credit | $649 | $4,328 | $7,152 | $8,046 |
| Threshold Phaseout (Married Filing Jointly) | $17,730 | $30,470 | $30,470 | $30,470 |
| Completed Phaseout (Married Filing Jointly) | $26,214 | $57,554 | $64,430 | $68,675 |
| Threshold Phaseout (Other Filers) | $10,620 | $23,350 | $23,350 | $23,350 |
| Completed Phaseout (Other Filers) | $19,104 | $50,434 | $57,310 | $61,555 |
Alternative Minimum Tax (AMT) Updates
The Alternative Minimum Tax (AMT) exemptions will increase in 2025, with single filers receiving an exemption of $88,100 and married couples filing jointly getting an exemption of $137,000. Phase-outs will begin at $626,350 and $1,252,700, respectively.
Other Notable Changes
- The annual gift exclusion will rise to $19,000.
- Adoption credits will top out at $17,280.
- The foreign-earned income exclusion will be $130,000.
- The estate tax exclusion will increase to $13,990,000.
Changes to Social Security
Many of the changes announced are driven by the 2.5% COLA increase, which was based on inflation data from the third quarter of the year. This adjustment will apply to Social Security, Supplemental Security Income (SSI) benefits, and disability payments.
Key Social Security Updates
- The maximum taxable earnings for Social Security will increase by $7,500, reaching $176,100.
- The earnings limit for workers under full retirement age will grow to $23,400.
- For individuals reaching full retirement age in 2025, the earnings limit will increase from $59,520 to $62,160.
Social Security Payroll Tax Rate
One aspect that remains unchanged is the Social Security payroll deduction tax rates, which will still be 7.65% for employees and 15.3% for the self-employed.
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