IRS Announces New Tax Brackets for 2025 and Social Security COLA

The federal government has released the full list of changes it will make to the financial front for the new year. The Social Security Administration released the long-awaited cost of living adjustment and the Internal Revenue Service (IRS) has released the changes in tax revenues and other payments.

IRS changes tax revenues

The tax authorities Changes are not complete overhauls of the system. For example the highest tax rate of 37% remains in effect, applicable to single filers earning more than $626,350 and married couples filing jointly with incomes exceeding $751,600. These figures will be the same as in 2024.

But as reported by News10, there have been some changes taxable income brackets to reflect the devaluation of money and the increase of money cost of living:

For married couples filing jointly and for surviving spouses

Taxable income range	Tax calculation
Less than $23,850	10%
$23,850 to $96,950	$2,385 plus 12% of deductible over $23,850
$96,950 to $206,700	$11,157 plus 22% of deductible over $96,950
$206,700 to $394,600	$35,302 plus 24% of deductible 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
More than $751,600	$202,154.50 plus 37% of deductible over $751,600

For unmarried persons

Taxable income range	Tax calculation
Less than $11,925	10%
$11,925 to $48,475	$1,192.50 plus 12% of deductible over $11,925
$48,475 to $103,350	$5,578.50 plus 22% of deductible over $48,475
$103,350 to $197,300	$17,651 plus 24% of deductible over $103,350
$197,300 to $250,525	$40,199 plus 32% of deductible over $197,300
$250,525 to $626,350	$57,231 plus 35% of deductible over $250,525
Over $626,350	$188,769.75 plus 37% of deductible over $626,350

If we apply these formulas to a real-world example, assuming New York’s median household income of $81,386 in 2022, and applying this as taxable income for a married couple filing jointly, they can expect to have debt in 2022. federal taxes $9,289.

This is because the federal income tax formula calculates different rates for different parts of your taxable income. Not all income is taxable; there are deductions (standard or itemized) that filers can apply to their income. The difference between the total income minus the deduction is the taxable income.

For single filers and married individuals filing separately, the standard deduction will increase to $15,000 in 2025, an increase of $400 from the previous year, and for married couples filing jointly, the standard deduction will increase by $800 to $30,000 .

Another change by the tax authorities is to the Earned income tax credit. According to agency data, credit follows the following table:

	No eligible children	1 eligible child	2 eligible children	3+ eligible children
Earned income	$8,490	$12,730	$17,880	$17,880
Maximum credit	$649	$4,328	$7,152	$8,046
Phasing out of the threshold (Married filing jointly)	$17,730	$30,470	$30,470	$30,470
Completed phase-out (Married filing jointly)	$26,214	$57,554	$64,430	$68,675
Phasing out of the threshold (Other submitters)	$10,620	$23,350	$23,350	$23,350
Completed phase-out (Other submitters)	$19,104	$50,434	$57,310	$61,555

The Alternative Minimum Tax (AMT) The exemptions will also increase in 2025. Single filers will get an exemption of $88,100, and married couples filing jointly will get $137,000, with phaseouts starting at $626,350 and $1,252,700, respectively. A few final changes, the annual gift exclusion increases to $19,000, and adoption credits will top out at $17,280. The exclusion of foreign income will be $130,000, and the exclusion from inheritance tax increases to $13,990,000.

The changes in social security

Most of these changes are due to the cost of living increase (2.5%) announced in October based on inflation data from the third quarter of the year. For example, Social Security, Supplemental Security Income (SSI), Disability Benefits and others will increase by this percentage. But there are some changes that are not informed by this number. The maximum taxable income for social security will rise by $7,500 to reach $176,100, the income limit for workers under full retirement age this will increase to $23,400 and for anyone reaching full retirement age in 2025 the limit will increase from $59,520 to $62,160

One thing that won’t change is the Social security wage deduction taxes, that will still be 7.65% for employees and 15.3% for the self-employed.