How 2025 Tax and Benefit Updates Will Impact Taxpayers

Your Money and the IRS

As is customary at this time of the year, the Internal Revenue Service (“IRS”) and the Social Security Administration have released their annual guidance for 2025, including Notice 2024-80, Rev. Proc. 2024-25, Rev. Proc. 2024-40 and an SSA Fact Sheet (collectively, the “Guidance”). The Guidance outlines important inflation-adjusted tax parameters and limitations for the coming year and addresses items that pertain to the overwhelming majority of individuals as well as items that are applicable to smaller subsets of individuals.

Key changes for 2025:

• Marginal federal income tax rates range from 10% ($11,925 or less for individual filers; $23,850 or less for married couples filing jointly) to 37% (income greater than $626,350 for individual filers; income greater than $751,600 for married couples filing jointly).
• The maximum amount that an individual can contribute to a 401(k) plan, 403(b) plan, 457 plan or the federal government’s Thrift Saving Plan is $23,500 (up from $23,000 the year before).
• The maximum “super catch-up” amount that an employee who is aged 60, 61, 62 or 63 can contribute to certain retirement plans is $11,250.
• The annual limitation for a health savings account (“HSA”) is $4,300 for those electing self-only medical coverage and $8,550 for those electing family medical coverage.
• The standard deduction for individual filers is $15,000 (up from $14,600) and $30,000 for married couples filing jointly (up from $29,200).
• The monthly limitation for mass transit or parking is $325 (up from $315).
• The FICA limit is $176,100 (up from $168,600).
• There are a host of other changes, including (but not limited to) individual retirement accounts (“IRAs”), definitions for retirement plan purposes, alternative minimum tax and tax credits. Refer to the Guidance for more information.

So what does this mean for you? Employees aged 60-63 gain the most significant advantage through the new super catch-up contribution allowance. Commuters from outer-ring suburbs using public transit will see modest benefits from increased transit limits. Individuals who already maximize their retirement and HSA contributions will maintain their ability to do so due to the relatively insignificant increases to the limits. The standard deduction increase provides some relief across filing categories, while the impact of changes to the income bands is more limited. Because the income bands for federal income tax are so large, only taxpayers with income close to a threshold income amount may be pushed to a higher or lower bracket. The increased FICA limit means the government will take more money from each paycheck for people making more than $176,100 per year.

Although much of the impact of these changes is somewhat limited for most people, the Guidance is an important tool for budgeting (especially during open enrollment). It also remains to be seen how, if at all, the results of the election will affect future tax planning. As always, Phillips Lytle attorneys are ready, willing and able to assist you with all of your tax and employee benefits needs.