The federal government has rolled out the anticipated updates for 2025 concerning tax brackets and Social Security adjustments.
The Internal Revenue Service (IRS) has updated its tax income brackets, while the Social Security Administration (SSA) has released its latest cost-of-living adjustment (COLA) figures.
Updates to IRS Tax Income Brackets
Although the IRS has not introduced a new tax system, there are adjustments to tax income brackets to account for inflation. For instance, the top tax rate of 37% still applies to single filers earning over $626,350 and married couples filing jointly with incomes above $751,600. Here are some key updates based on filing status:
For Married Couples Filing Jointly and Surviving Spouses:
- Income below $23,850 is taxed at 10%.
- For incomes between $23,850 and $96,950, the tax is $2,385 plus 12% of the excess over $23,850.
- Additional brackets range up to the top bracket of $751,600, which is taxed at $202,154.50 plus 37% of the excess.
For Single Filers:
- Income below $11,925 falls under the 10% rate.
- Incomes between $11,925 and $48,475 are taxed at $1,192.50 plus 12% of the excess over $11,925.
- Higher-income brackets apply until $626,350, taxed at $188,769.75 plus 37%.
As an example, a couple in New York earning the median income of $81,386 could anticipate a federal tax of approximately $9,289, calculated through varied rates applied progressively across income ranges. Filers can reduce their taxable income through standard or itemized deductions.
Changes in Standard Deduction
For 2025, the standard deduction for single filers and married individuals filing separately will rise to $15,000, while married couples filing jointly will see an increase to $30,000. This increase provides some tax relief by reducing the amount of income subject to tax.
Earned Income Tax Credit Adjustments
The IRS has also updated the Earned Income Tax Credit (EITC) for 2025. Here’s a breakdown of qualifying earnings and the maximum credit based on the number of children:
| Number of Qualifying Children | Earned Income | Maximum Credit | Phaseout (Married Filing Jointly) | Phaseout (Other Filers) |
|---|---|---|---|---|
| No children | $8,490 | $649 | $17,730 | $10,620 |
| One child | $12,730 | $4,328 | $30,470 | $23,350 |
| Two children | $17,880 | $7,152 | $30,470 | $23,350 |
| Three or more children | $17,880 | $8,046 | $30,470 | $23,350 |
These adjustments reflect the rising cost of living, providing increased support to low- and moderate-income families.
Additional IRS Adjustments
The Alternative Minimum Tax (AMT) exemption for single filers is set to increase to $88,100, while married couples filing jointly will have an exemption of $137,000. Gift exclusion limits are now at $19,000, and the adoption credit will max out at $17,280. The foreign income exclusion also rises to $130,000, with the estate tax exemption now at $13,990,000.
Social Security Updates for 2025
Reflecting a 2.5% cost-of-living adjustment (COLA), Social Security and Supplemental Security Income (SSI) payments will increase. The maximum taxable earnings for Social Security are set to rise by $7,500, bringing the cap to $176,100. Earnings limits for individuals below full retirement age are also adjusted, with limits rising to $23,400, and those reaching full retirement age can expect a limit of $62,160.
Payroll taxes for Social Security, however, remain unchanged, with employees contributing 7.65% and self-employed individuals contributing 15.3%.
FAQs
Tax rates remain largely the same, with minor adjustments to income brackets due to inflation. The top rate remains at 37%.
The EITC provides increased credit for qualifying low- and moderate-income households based on earned income and the number of dependent children, offering financial relief.
Yes, Social Security benefits are set to increase by 2.5% in 2025 to help recipients keep pace with inflation.
In 2025, the standard deduction will rise to $15,000 for single filers and $30,000 for married couples filing jointly.
Yes, the estate tax exclusion will increase to $13,990,000, which may reduce estate tax obligations for large estates.
