2025 Federal Payroll Tax Changes

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Executive Summary

The start of 2025 brings important federal payroll tax and withholding changes that every employer needs to understand. From updates to Social Security wage limits to adjustments in retirement contributions and tax withholding rates, these changes directly impact payroll management and compliance. 

To help you stay ahead, we at Packer Thomas CPAs have outlined the most significant federal updates for the new tax year and what they mean for your business

 

2025 Federal Payroll Tax Changes

 

Social Security Tax Withholding

The Social Security tax wage base has increased to $176,100 for 2025. Both employees and employers will continue to contribute at a rate of 6.2% on wages up to this threshold. This adjustment raises the maximum Social Security tax withheld from wages to $10,918.20 for the year. Medicare tax remains unchanged at 1.45% for both employees and employers, applicable to all wages without a cap. Additionally, an extra 0.9% Medicare tax is imposed on individuals earning over $200,000 annually; employers are not required to match this additional tax. 

Federal Income Tax Withholding

The IRS has released the inflation-adjusted federal income tax brackets for 2025. For single filers, the standard deduction increases to $15,000, while married couples filing jointly see an increase to $30,000. 

Although the marginal tax rates remain unchanged, inflation adjustments have shifted the income thresholds that determine which tax rates apply.

Tax rate

Single filers

Married filing jointly

10%

$0 to $11,925

0 to $23,850

12%

$11,926 to $48,475

$23,851 to $96,950

22%

$48,476 to $103,350

$96,951 to $206,700

24%

$103,351 to $197,300

$206,701 to $394,600

32%

$197,301 to $250,525

$394,601 to $501,050

35%

$250,526 to $626,350

$501,051 to $751,600

37%

$626,451 or more

$751,601 or more

Federal Unemployment Tax Act (FUTA)

The FUTA taxable wage base remains at $7,000 per employee for 2025. The standard FUTA tax rate is 6.0%; however, most employers are eligible for a 5.4% credit for timely state unemployment tax payments, resulting in an effective rate of 0.6%. 

Retirement Contribution Limits

For 2025, the contribution limit for employees participating in 401(k), 403(b), and most 457 plans increases to $23,500. The catch-up contribution limit for employees aged 50 and over remains at $7,500. Notably, under the SECURE 2.0 Act, individuals aged 60 to 63 are eligible for a higher catch-up contribution limit of $11,250. 

Health Flexible Spending Arrangements (FSAs)

The annual contribution limit for health FSAs increases to $3,300 for 2025. For cafeteria plans that permit the carryover of unused amounts, the maximum carryover amount rises to $660. 

Additional Considerations

Employers are reminded to obtain updated Forms W-4 from employees to accurately reflect any changes in filing status or personal exemptions. Additionally, the federal minimum wage remains at $7.25 per hour; however, employers should verify if state or local minimum wage rates have changed to ensure compliance. 

Navigating payroll tax changes can be time-consuming, but you don’t have to do it alone. Our team can help you stay compliant in the face of evolving tax regulations. If you have questions about how these 2025 updates affect your business, contact our office today. We’re here to provide the personalized guidance you need to keep your payroll processes running smoothly.

For over 100 years, Packer Thomas has served generations of business owners, families, and others with tax, auditing, accounting, and information technology services. But we didn’t last that long by standing still. We’ve evolved to meet the needs of our clients who are also facing challenging changes in their financial, tax, and information technology environments.

 

**Disclaimer:** 

 

The information provided in this blog is based on current tax law as of the time of publication. However, tax laws and regulations are subject to change, and the content may not reflect the most current legal or tax developments at the time of your reference. This blog is for general informational purposes only and should not be considered as specific tax advice. We recommend consulting with your Packer Thomas professional for personalized guidance or to address any specific questions you may have.

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