What You Need to Know Heading into 2025
Staying informed on the latest IRS updates can help you keep more of your hard-earned money and avoid surprises during tax season. As we head toward 2025, several key changes are on the horizon—particularly regarding paycheck withholding, Social Security tax limits, and interest rates. Below is a breakdown of these updates so you can plan accordingly.
First, the IRS encourages taxpayers to review their paycheck withholding amounts toward the end of 2024 and early 2025. Why? Because life events—such as births, deaths, marriage, and divorce—can drastically change the amount of tax you owe compared to the previous year. By adjusting your withholdings now, you can avoid having too little or too much taken out of your paychecks. With too little withheld, you might face an unexpected tax bill; with too much withheld, you may miss out on having extra cash in hand throughout the year.
Next, Social Security taxes will see an increase in 2025. The maximum Social Security tax you could pay will rise to $10,918.20, up from $10,453.20 in 2024. The taxable income subject to the 6.2% Social Security tax rate (12.4% if you’re self-employed) will also increase, going from $168,600 in 2024 to $176,100 in 2025. Additionally, Social Security benefits will go up by about 3.6%. As a result, the average monthly retirement benefit will increase to $1,976 starting in January 2025, up from $1,907 per month in 2024.
Lastly, interest rates set by the IRS for the fourth quarter of 2024 will remain the same as the previous quarter. These include 8% for overpayments (7% for corporations), 5.5% for portions of corporate overpayments over $10,000, 8% for underpayments, and 10% for large corporate underpayments. While these rates may not be changing for now, it’s essential to keep an eye on them for any adjustments in 2025.
Staying current on these updates is crucial for financial planning. If you’re unsure how the latest IRS news might affect you, it’s always wise to consult with a trusted tax advisor.
