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According to Lagradaonline, The federal government has released a comprehensive list of changes for the upcoming year, impacting Social Security benefits, tax income brackets, and other financial aspects. The Social Security Administration (SSA) has unveiled its long-awaited cost-of-living adjustment (COLA), while the Internal Revenue Service (IRS) has outlined modifications to tax income brackets and various payments.
IRS Changes to Tax Income Brackets
The IRS updates are not a complete overhaul of the tax system; for instance, the top tax rate of 37% remains unchanged, applying to single filers earning over $626,350 and married couples filing jointly with incomes over $751,600—the same thresholds as in 2024.
However, adjustments have been made to the taxable income brackets to reflect inflation and the rising cost of living:
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 |
For example, using New York’s median household income of $81,386 from 2022, a couple filing jointly could expect to owe approximately $9,289 in federal taxes. This calculation accounts for the varying rates applied to different portions of taxable income. It’s important to note that not all income is taxable, and filers can apply either standard or itemized deductions to reduce their taxable income.
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The standard deduction will increase in 2025:
- $15,000 for single filers (up $400 from the previous year)
- $30,000 for married couples filing jointly (up $800)
Changes to the Earned Income Tax Credit (EITC)
The Earned Income Tax Credit will also see changes, outlined in the table below:
| No Qualifying Children | 1 Qualifying Child | 2 Qualifying Children | 3+ Qualifying Children |
|---|---|---|---|
| Earned Income | $8,490 | $12,730 | $17,880 |
| Maximum Credit | $649 | $4,328 | $7,152 |
| Threshold Phaseout (Married Filing Jointly) | $17,730 | $30,470 | $30,470 |
| Completed Phaseout (Married Filing Jointly) | $26,214 | $57,554 | $64,430 |
| Threshold Phaseout (Other Filers) | $10,620 | $23,350 | $23,350 |
| Completed Phaseout (Other Filers) | $19,104 | $50,434 | $57,310 |
Additionally, the Alternative Minimum Tax (AMT) exemptions will increase in 2025, with single filers receiving an exemption of $88,100 and married couples filing jointly receiving $137,000. Phase-outs begin at $626,350 and $1,252,700, respectively. Other changes include:
- Annual gift exclusion rising to $19,000
- Adoption credits topping out at $17,280
- Foreign-earned income exclusion set at $130,000
- Estate tax exclusion increasing to $13,990,000
Changes to Social Security Benefits
Many of these adjustments are influenced by the recently announced 2.5% cost-of-living increase based on inflation data from the third quarter of the year. Consequently, Social Security, Supplemental Security Income (SSI) benefits, Disability payments, and others will reflect this percentage increase.
Additionally, some Social Security parameters will change:
- The maximum taxable earnings for Social Security will rise by $7,500, reaching $176,100.
- The earnings limit for workers under full retirement age will increase to $23,400.
- For individuals reaching full retirement age in 2025, the limit will rise from $59,520 to $62,160.
One constant is the Social Security payroll deduction taxes, which will remain at 7.65% for employees and 15.3% for self-employed individuals.
