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Five Important Tax Changes Coming in 2025

As we step into 2025, several tax changes are set to affect individuals. Staying informed about these changes can help you make the most of new opportunities and avoid potential pitfalls. Here’s a breakdown of five key updates to keep on your radar for 2025:

1. North Carolina’s Individual Income Tax Rate Reduction

North Carolina residents will see a welcome reduction in state income taxes. For the 2025 tax year, the individual income tax rate drops to 4.25%, down from 4.5% in 2024. And this is just the beginning—North Carolina’s tax rate is set to decrease further to 3.99% in 2026 under the current tax code.

North Carolina isn’t alone in reducing income tax rates. Tax cuts are a growing trend in several states, so it’s worth keeping an eye on changes in your state if you’re outside NC.

2. 401(k)/403(b) Contribution Limit Increase and the New "Super" Catch-up Contribution

Big news for retirement savers! The IRS has announced increased contribution limits for employer-sponsored retirement plans:

  • 401(k) and 403(b) contributions:
    • Individuals under 50 can contribute up to $23,500 (up from $23,000 in 2024).
    • Individuals 50 and older can contribute up to $31,000 (up from $30,500 in 2024).
  • New "super" catch-up contributions:
    • Individuals aged 60–63 can contribute an additional $11,250, bringing their total allowable contribution to $34,750 for 2025.

This change makes it an ideal time for those nearing retirement to maximize their savings potential.

3. Federal Student Loan Repayment Updates

Federal student loan repayments are back in full swing in 2025 after a prolonged pause. Along with the return of payments comes the introduction of new income-driven repayment options, like the SAVE Plan. This plan:

  • Caps monthly payments at a lower percentage of discretionary income.
  • Offers forgiveness of remaining balances after 20 or 25 years, depending on the borrower’s circumstances.

Borrowers will need to adjust their budgets to accommodate repayments early in the year. Missing payments could lead to severe consequences, such as damage to credit scores or, in extreme cases, wage garnishment.

4. Increased Standard Deduction

The IRS has raised the standard deduction for 2025:

  • Single filers: $15,000 (up from $14,600 in 2024).
  • Married filing jointly: $30,000 (up from $29,200 in 2024).

This increase means many taxpayers will see a slight reduction in taxable income, making it easier to take advantage of tax savings without itemizing deductions.

5. Increased Social Security Tax Wage Limit

The maximum earnings subject to Social Security tax rises to $176,100 in 2025 (up from $168,600 in 2024). This change impacts:

  • Employees and employers, who each pay 6.2% into Social Security (OASDI).
  • Self-employed individuals, who pay the full 12.4% tax rate up to the earnings limit.

If you’re self-employed, it’s essential to factor this increased limit into your tax planning for the year.

Tax Planning for 2025

These updates bring opportunities to save, invest, and adjust your financial strategies, but they also introduce new responsibilities. Whether it’s maximizing retirement savings, budgeting for student loan repayments, or navigating new tax rules, planning ahead is key.

At Ark Royal Wealth Management we stay current on all the ways we can help you make the most out of your money.