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As we step into 2025, businesses must stay informed on important tax code adjustments affecting payroll, deductions, and employee benefits. Understanding these changes can help employers optimize payroll processes and stay compliant. Niural automatically detects and implements tax code adjustments to maintain a smooth transition and keep your business compliant  Here’s a breakdown of what’s new in the US tax code this year and how it impacts payroll and deductions. 

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1. Federal Income Tax Brackets and Rates

The IRS has made inflation adjustments to federal income tax brackets for 2025. Though tax rates remain unchanged, income thresholds have been raised to prevent “bracket creep”—a phenomenon where inflation pushes taxpayers into higher tax brackets without a true income increase. Here’s a quick look at the updated brackets:

• 10%: $0 to $11,925
• 12%: $11,926 to $48,475
• 22%: $48,476 to $103,350
• 24%: $103,351 to $197,300
• 32%: $197,301 to $250,525
• 35%: $250,526 to $626,350
• 37%: Over $626,350

These adjustments allow for a more balanced tax burden, particularly beneficial for employees earning in the mid-to-high income ranges.

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2. Increased Standard Deduction

The standard deduction has been raised for all filing categories, effectively lowering taxable income for many. Here’s how it looks for 2025:

• Single filers and married individuals filing separately: $15,000 (up from $14,600)
• Married couples filing jointly: $30,000 (up from $29,200)
• Heads of household: $22,500 (up from $21,900)

This increase can lower the amount of income subject to taxes, benefiting employees who don’t itemize deductions.

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3. Retirement Contribution Limits

To encourage saving for retirement, contribution limits for popular retirement accounts have been increased:

• 401(k), 403(b), and Thrift Savings Plan: The contribution limit rises to $23,500, up from $23,000 in 2024.
• Individual Retirement Accounts (IRAs): The annual limit remains at $7,000, with a $1,000 catch-up contribution for those aged 50 and over.

These adjustments empower employees to contribute more towards retirement, potentially helping them to achieve stronger long-term financial security.

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4. Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs)

Healthcare expenses can add up, but increased limits on HSAs and FSAs can help employees manage costs efficiently:

• Health FSAs: Contribution limits increase to $3,300, with a maximum carryover amount of $660.
• HSAs: For individuals with self-only coverage, the contribution limit increases to $4,300, while those with family coverage can contribute up to $8,550.

These accounts allow employees to set aside pre-tax dollars for medical expenses, leading to potential tax savings while supporting healthcare needs.

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5. Earned Income Tax Credit (EITC)

The maximum EITC amount has been adjusted for 2025, allowing lower-income employees with qualifying children to claim a larger credit:

• For taxpayers with three or more qualifying children, the maximum EITC rises to $8,046, up from $7,830 in 2024.

Employers should ensure their payroll systems reflect these changes, as EITC eligibility can significantly impact take-home pay for eligible employees.

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6. Estate and Gift Tax Exemptions

The IRS has also increased estate and gift tax exemptions:

• Estate Tax Exclusion: The basic exclusion amount is now $13,990,000, up from $13,610,000 in 2024.
• Gift Tax: The annual exclusion for gifts increases to $19,000 per recipient, up from $18,000.

While these changes may primarily affect higher-income employees, they provide more flexibility for estate planning and wealth transfers.

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7. U.S. Payroll Changes for 2025

For 2025, several key payroll updates apply nationwide:

• Social Security Wage Base: The maximum taxable earnings for Social Security rise to $165,300 (up from $160,200), impacting payroll taxes for both employers and employees.
• Medicare Tax: The Medicare tax remains at 1.45%, with an additional 0.9% for employees on wages above $200,000.
• Federal Unemployment Tax (FUTA): Employers pay FUTA at 6.0% on the first $7,000 of wages. Certain states may have credit reductions, increasing FUTA rates in those areas.
• Electronic Filing Requirements: More payroll forms, like the 941 and 940, must now be filed electronically, improving accuracy and reducing paperwork.
• Minimum Wage Increases: Although the federal minimum remains $7.25, many states have raised their minimum wages. Employers should check for state-specific changes.

These updates aim to streamline payroll and ensure compliance. Employers should update payroll systems, communicate changes to employees, and monitor state minimum wage laws for smooth transitions in 2025.

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Preparing for a Smooth Payroll Transition

With these tax code updates, employers should take the following steps to ensure compliance and maximize benefits for their workforce:

• Review Payroll Systems: Ensure all payroll software and tools are updated with new federal and state tax code changes.
• Educate Employees: Inform employees about increases in retirement and HSA/FSA contribution limits, as well as updated EITC amounts.
• Work with Tax Professionals: Consult tax advisors to make sure your company is fully aligned with tax requirements for 2025.

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At Niural, you don’t have to worry about manually updating payroll systems and implementing tax code changes. Using AI SuperAgents to continuously monitor employment laws in the US and abroad, Niural automatically updates to account for tax code changes. We’ll worry about tax codes and the logistics of keeping you compliant so you can focus on business as usual.

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Stay tuned to Niural’s blog for more insights and updates on payroll, compliance, and tax management throughout the year!

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