2025 Projected Cost of Living Adjustments for Payroll Tax

Payroll-related tax figures are adjusted annually for cost-of-living increases. On September 11, 2024, the Bureau of Labor Statistics released Consumer Price Index amounts for August 2024, enabling the calculation of 2025 amounts.

Overview of projected payroll tax for businesses

Adoption credit

• Adoption of a child with special needs
  • 2025: $17,280 ($16,810 in 2024)
• Other Adoptions
  • 2025: The maximum credit allowed will be the amount of qualified adoption expenses up to $17,280 ($16,810 in 2024)
• Credit phase out
  • 2025: The credit will begin to phase out for taxpayers with modified adjusted gross income (MAGI) more than $259,190 ($252,150 in 2024)
  • The phaseout will be complete if MAGI is $299,190 ($292,150 in 2024)

Employer adoption assistance exclusion

• Adoption of a child with special needs
  • 2025: The amount of employer adoption assistance that can be excluded from an employee’s gross income for the adoption of a child special needs will be $17,280 ($16,810 in 2024)
• Other Adoptions
  • 2025: The amount of employer adoption assistance that can be excluded from an employee’s gross income for the adoption of a child will be $17,280 ($16,810 in 2024)
• The exclusion is allowed regardless of expenses
• Exclusion phase out
  • 2025: The amount excludable from an employee’s gross income will begin to phase out for taxpayers with MAGI more than $259,190 ($252,150 in 2024)
  • The phaseout will be complete if MAGI is $299,190 ($292,150 in 2024)

Foreign earned income and housing cost exclusion

• Foreign earned income exclusion
  • 2025: Amount will be $130,000 ($126,500 in 2024)
• Foreign housing cost exclusion
  • 2025: Amount will be $18,200 ($17,710 in 2024)

Long-term care premiums

• Amounts paid for insurance that covers qualified long-term care services are treated as medical expenses up to specified dollar limits that vary with the age of the taxpayer as of the close of the tax year. For 2025, the taxpayer dollar limits will be:

• • Aged 40 or younger – $480 ($470 in 2024)
  • 40+ through age 50 – $900 ($880 in 2024)
  • 50+ through age 60 – $1,800 ($1,760 in 2024)
  • 60+ through age 70 – $4,810 ($4,710 for 2024)
  • 70+ – $6,020 ($5,880 in 2024)

Payments received under qualified long-term care insurance

• Amounts received under a qualified long-term care insurance contract are generally excludable as amounts received for personal injuries and sickness, subject to a per diem limitation.
  • 2025: $420 ($410 in 2024).

Limit on health flexible spending account (FSA) salary reduction contributions under a cafeteria plan

• For purposes of determining whether a health FSA benefit will be a “qualified benefit” under Code Sec. 125 for the 2025 plan year, the cafeteria plan must provide that an employee may not elect to have salary reduction contributions exceeding $3,300 made to the health FSA ($3,200 for 2024).

Small employer health insurance credit

• An eligible small employer may claim, subject to a phaseout, a credit equal to 50% of nonelective contributions for health insurance for its employees. The credit is reduced under certain circumstances, including if the average annual full-time equivalent wages per employee are more than $33,300 ($32,400 for 2024).

Qualified small employer health reimbursement arrangement (HRA)

• A qualified small employer HRA under Code Sec. 9831(d)(2) is an arrangement which, among other requirements, makes payments and reimbursements for qualifying medical care expenses of an eligible employee.
  • For 2025, qualifying medical expenses cannot exceed $6,350 ($6,150 for 2024), or $12,800 in the case of an arrangement that also provides for payments or reimbursements for family members of the employee ($12,450 for 2024).

Qualified transportation fringe benefits

• For 2025, an employee will be able to exclude up to $325 ($315 in 2024) a month for qualified parking expenses and the combined value of transit passes and transportation in a commuter highway vehicle can be excluded up to $325 a month ($315 in 2024)

Levy exemptions

• For 2025, the weekly amount of an individual’s salary, wages, etc., exempt from levy is $5,100 multiplied by the number of the taxpayer’s dependents for the tax year of the levy ($5,000 for 2024), plus the taxpayer’s standard deduction, divided by 52.

Your Keiter Opportunity Advisors will continue to keep you updated on new and changing regulations that may impact your business.

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© 2024 Thomson Reuters/Tax & Accounting.