IRS Announces New Tax Brackets for 2025 and Social Security COLA – How They Will Affect New York Residents

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

IRS changes to tax income brackets

The IRS changes are not complete overhauls of the system. For example, the top tax rate of 37% will remain in place, applying to single filers earning over $626,350 and married couples filing jointly with incomes over $751,600. These figures will be the same ones as in 2024.

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

If we apply these formulas to a real-life example, taking New York’s median household income of $81,386 in 2022, and apply it as taxable income for a couple filing jointly, they could expect to owe in federal taxes $9,289.

This is because the federal income tax formula calculates different rates for different portions of your taxable income. Not all income is taxable, there are deductions (standard or itemized) 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 in 2025 will rise to $15,000, an increase of $400 from the previous year and for married couples filing jointly, the standard deduction will increase by $800, reaching $30,000.

Another change by the IRS is to the Earned Income Tax Credit. According to data provided by the agency, the credit will follow the following table:

	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

The Alternative Minimum Tax (AMT) exemptions will also increase in 2025. Single filers will have an exemption of $88,100, and married couples filing jointly will have $137,000, with phase-outs beginning at $626,350 and $1,252,700, respectively. A few last changes, the annual gift exclusion is rising to $19,000, and adoption credits will top out at $17,280. The foreign-earned income exclusion will be $130,000, and the estate tax exclusion increases to $13,990,000.

The changes to Social Security

Most of these changes are informed by the cost of living increase (2,5%) that was announced in October based on the inflation data from the third trimester of the year. For example, Social Security, Supplemental Security Income (SSI) benefits, Disability payments and others will increase by this percentage. But there are some changes that will not be informed by this number. The maximum taxable earnings for Social Security will go up by $7,500, landing at $176,100, the earnings limit for workers under full retirement age will grow to $23,400 and for anyone who reaches full retirement age in 2025, the limit will rise from $59,520 to $62,160

One thing that will not change is the Social Security payroll deduction taxes, which will still be7.65% for employees and 15.3% for those who are self-employed.

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