IRS Announces 2025 Tax Brackets and Social Security COLA – Impact on New York Residents

By Shivam Singh

Published on:

Joe Biden

As the new year approaches, the federal government has released essential updates on tax brackets, Social Security benefits, and other financial adjustments. The IRS has adjusted income tax brackets and deductions, while the Social Security Administration (SSA) has issued new cost-of-living adjustments (COLAs) to help offset inflation.

These changes will affect millions of Americans’ finances in 2025, from tax rates to benefits. Let’s look into what to expect in the coming year.

Tax Brackets

While the IRS hasn’t overhauled the tax system, there are notable adjustments in the taxable income brackets to reflect inflation. The top tax rate of 37% remains unchanged, applying to single filers earning over $626,350 and married couples filing jointly earning over $751,600. Here’s a breakdown of 2025 tax brackets:

Surviving Spouses

Taxable Income RangeTax Calculation
Under $23,85010%
$23,850 to $96,950$2,385 + 12% of the excess over $23,850
$96,950 to $206,700$11,157 + 22% of the excess over $96,950
$206,700 to $394,600$35,302 + 24% of the excess over $206,700
$394,600 to $501,050$80,398 + 32% of the excess over $394,600
$501,050 to $751,600$114,462 + 35% of the excess over $501,050
Over $751,600$202,154.50 + 37% of the excess over $751,600

Unmarried Individuals

Taxable Income RangeTax Calculation
Under $11,92510%
$11,925 to $48,475$1,192.50 + 12% of the excess over $11,925
$48,475 to $103,350$5,578.50 + 22% of the excess over $48,475
$103,350 to $197,300$17,651 + 24% of the excess over $103,350
$197,300 to $250,525$40,199 + 32% of the excess over $197,300
$250,525 to $626,350$57,231 + 35% of the excess over $250,525
Over $626,350$188,769.75 + 37% of the excess over $626,350

Real-Life Tax Example

Using New York’s 2022 median household income of $81,386 as taxable income for a couple filing jointly, their estimated federal tax would be approximately $9,289, based on the tiered tax formula.

Deductions and Credits

The standard deduction has increased in 2025:

  • Single Filers and Married Individuals Filing Separately: $15,000 (up by $400)
  • Married Couples Filing Jointly: $30,000 (up by $800)

These deductions reduce taxable income, potentially lowering tax obligations for most filers.

Earned Income Tax Credit (EITC)

The EITC also sees adjustments, designed to aid low- and moderate-income working individuals and families. Here’s the updated table for 2025:

Qualifying ChildrenEarned Income ThresholdMaximum CreditMarried Filing Jointly Phaseout StartPhaseout End
No children$8,490$649$17,730$26,214
1 child$12,730$4,328$30,470$57,554
2 children$17,880$7,152$30,470$64,430
3+ children$17,880$8,046$30,470$68,675

The phaseout amounts vary based on filing status, ensuring that families with higher earnings receive reduced credits.

Alternative Minimum Tax (AMT)

In 2025, AMT exemptions also increase:

  • Single Filers: $88,100, with phase-outs beginning at $626,350
  • Married Filing Jointly: $137,000, with phase-outs beginning at $1,252,700

The AMT targets high earners by ensuring they pay a minimum tax rate if their income qualifies, even after deductions.

Other Tax Adjustments

Additional notable tax changes for 2025 include:

  • Annual Gift Exclusion: Rises to $19,000
  • Adoption Credit: Capped at $17,280
  • Foreign-Earned Income Exclusion: Increases to $130,000
  • Estate Tax Exclusion: Increases to $13,990,000

These updates help taxpayers make the most of specific tax breaks and ensure that income limits reflect inflation.

Social Security Adjustments

The SSA’s 2025 COLA, based on a 2.5% cost-of-living increase, applies to Social Security, Supplemental Security Income (SSI), and disability benefits. This increase aims to help recipients cope with inflation.

Maximum Taxable Earnings and Income Limits

Other important Social Security changes include:

  • Maximum Taxable Earnings: Increases by $7,500 to $176,100
  • Earnings Limit for Workers Under Full Retirement Age: Rises to $23,400
  • Earnings Limit for Those at Full Retirement Age: Grows from $59,520 to $62,160

These adjustments align Social Security contributions and benefits with inflation trends, ensuring that recipients benefit more from contributions over time.

Payroll Deduction Rates

The Social Security payroll tax rate will remain unchanged in 2025:

  • Employees: 7.65%
  • Self-Employed Individuals: 15.3%

These rates cover Social Security and Medicare, ensuring that contributions support future benefits without any immediate cost increase to employees or employers.

With these new tax and Social Security guidelines, Americans can better plan for 2025’s financial landscape, taking advantage of deductions, credits, and benefits to optimize their earnings and retirement contributions. These changes reflect the federal government’s commitment to adjusting for inflation, though the details may require taxpayers to review their annual finances closely.

FAQs

What are the new 2025 tax brackets?

Tax brackets have minor adjustments to reflect inflation; the top rate is still 37%.

How much is the 2025 standard deduction?

The standard deduction is $15,000 for individuals and $30,000 for married couples.

How does the 2025 EITC work?

It provides tax credits based on income and number of qualifying children.

What is the 2025 Social Security COLA?

A 2.5% increase applies to benefits in 2025 to match inflation.

Will payroll tax rates change in 2025?

No, they remain at 7.65% for employees and 15.3% for the self-employed.

Shivam Singh

A seasoned tax analyst renowned for his expertise in international taxation. Shivam's contributions to the tax news blog provide readers with valuable insights into the complexities of cross-border taxation and compliance.

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