How Do Major 2025 Tax Changes Affect You

As we enter 2025, taxpayers across the country are facing a wave of significant tax changes at the state level. Understanding these changes, including those related to Social Security, income taxes, property taxes, and others is crucial for making informed financial decisions and adjusting your approach accordingly.  

Let’s take a closer look at some key state-level tax changes you’ll encounter this year so you can plan and budget accordingly. 

Income Tax Changes: Understanding the Impact 

Many states are cutting individual income tax rates. This means you may owe less money in taxes. 

• Iowa: Moving to a flat rate of 3.8% (previously topped at 5.7%)
• Louisiana: New flat rate of 3% along with a $12,500 higher standard deduction
• Indiana: Flat tax rate decreased from 3.05% to 3%
• Mississippi: Reducing flat rate from 4.7% to 4.4%
• Missouri: Adding a new 4.3% bracket for specific income levels (for filers earning between $16,500 and $33,500 individually or $25,000 to $50,000 jointly). 

Other states like Nebraska, New Mexico, North Carolina, and West Virginia are also cutting individual income tax rates

Federal Taxation on Social Security Benefits 

At the federal level, taxation on Social Security benefits remains unchanged. If your combined income (including Social Security benefits) exceeds certain thresholds, you may owe taxes on up to 85% of your benefits. It’s important to monitor your income fluctuations to anticipate potential tax implications. 

State-Level Social Security Tax Changes 

While most states don’t tax Social Security income, some are implementing positive changes in 2025: 

West Virginia is phasing out its Social Security tax: 

• 2025: 65% of benefits exempt from state tax 
• 2026: 100% exempt 

This change will benefit approximately 50,000 West Virginians. 

Colorado is expanding tax exemptions: 

• 2025: Exemptions now include those aged 55-64 
• Eligibility depends on income: $75,000 for individuals, $95,000 for joint filers 

Michigan continues phasing out retirement income tax: 

• 2025: Residents born 1946-1966 can deduct up to 75% of retirement income 
• 2026: Aiming for full exemption 

This is part of Michigan’s “Lowering MI Costs Plan.” 

State Sales Tax Changes 

Several states are adjusting their sales tax policies: 

• Louisiana is reintroducing a 5% sales tax rate, up from 4.45%, now including digital goods. 
• Kansas is eliminating the state’s 2% sales tax on groceries. 
• Georgia is allowing localities to impose new sales taxes to offset property tax relief costs. 
• Nevada has removed the sales tax on diapers. 

Property Tax Relief 

Some states are implementing measures to assist homeowners: 

• Florida’s Amendment 5 will make annual inflation adjustments to a $25,000 homestead exemption. 
• Georgia passed Amendment 1 to control assessment growth for homesteads. 
• Minnesota will increase its maximum homestead property exclusion to $38,000. 

Gas Tax Adjustments 

States are modifying gas taxes due to infrastructure and environmental needs: 

• New Jersey’s rate will increase by 2.6 cents per gallon. 
• Minnesota’s rate will rise to 31.8 cents per gallon. California may see gas prices increase by 35 cents a gallon and diesel by 59 cents. 
• New York and North Carolina will experience reduced gas tax rates. 
• Vermont and Wisconsin will tax EV infrastructure, while Kentucky will adjust its EV charger tax. 

Rental Tax Changes 

Significant changes are occurring in rental taxation: 

• Arizona will remove taxes on long-term residential rentals, potentially saving renters 1.5% to 3.5% monthly. 
• Delaware introduces a 4.5% short-term rental tax for rentals up to 31 nights. 

What These Changes Mean for You 

The diverse tax regulations for 2025 reflect a balance between attracting residents and managing fiscal needs. Some individuals may see reduced income tax but potentially face cost increases in other areas. These changes could significantly impact your finances, especially if you live in one of the affected states. 

For instance, if you’re in West Virginia, you’ll retain more of your Social Security benefits as the state tax phases out. In Colorado, if you’re between 55-64, you might now qualify for new tax exemptions. Homeowners in Florida, Georgia, and Minnesota may benefit from property tax relief measures. 

Even if you don’t reside in these states, it’s crucial to stay informed about your state’s tax laws. They can have a substantial impact on your retirement income and overall financial situation. 

Planning for 2025 

While these changes are generally positive, everyone’s financial situation is unique. Consider the following: 

• Review your state’s specific tax policies using official state resources. 
• Consider how sales tax changes might affect your budget, especially for major purchases. 
• Factor in potential gas tax adjustments when planning transportation costs.
• If you’re a renter or landlord, be aware of the rental tax changes in your state. 

Remember, while this overview provides general guidance, tax laws can be complex and subject to change. It’s important to consult with a qualified tax professional to understand how these changes might affect your specific circumstances and to help you plan accordingly. 

If you need help understanding how these changes may affect your specific situation, you can always reach out to explore your options and make informed tax decisions. 

Source: 

Kiplinger. “Several States Announce New Year Tax Changes.” Kiplinger, 2 Jan. 2025, www.kiplinger.com/taxes/several-states-announce-new-year-tax-changes 

We do not provide tax or legal advice or services. Always consult with qualified tax and legal advisors concerning your circumstances. We are not affiliated with the Social Security Administration or any other governmental agency. This information is being provided only as a general source of information and is not intended to be the primary basis for investment decisions. It should not be construed as advice designed to meet the particular needs of an individual situation. Please seek the guidance of a financial professional regarding your particular financial concerns. Consult with your tax advisor or attorney regarding specific tax issues.