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Tax Changes Implemented Pay Period (PP) 2025-03: Federal, PR, AR, CA, HI, IN, IA, KY, ME, MA, MI, MS, MO, NE, NM, RI, SC, WV, and Localities in IN and KY

MEMORANDUM

DATE: January 29, 2025
TO: Federal Personnel and Payroll System User Group Representatives
FROM: Christine Zertuche-Rocha, Chief, Payroll Operations Division
SUBJECT: Action Required: Tax Changes Implemented Pay Period (PP) 2025-03: Federal, PR, AR, CA, HI, IN, IA, KY, ME, MA, MI, MS, MO, NE, NM, RI, SC, WV, and Localities in IN and KY

Please share this information with all impacted employees. The following tax changes were implemented in PP 2025-03. As a result, employees may see a change in their tax withholdings.  As a reminder, tax changes are not retroactive to employees’ withholding.

Federal Taxes

  • U.S.  Federal Social Security (OASDI) Wage Base – The wage base has increased from $168,600 to $176,100. There is no limit on Medicare wages and the Social Security and Medicare tax rates remain unchanged.
  • U.S. Federal 401 (k) Wage Limits:
    • The 401(k) maximum exclusion limit has increased from $23,000 to $23,500. 
    • The catch-up contribution for employees who will be age 50 or over in 2025 will remain at $7,500.
    • Effective January 1, 2025, the Setting Every Community Up for Retirement Enhancement Act of 2022 (commonly referred to as the SECURE 2.0 Act) permits an increased catch-up contribution limit of $11,250 for employees who turn age 60, 61, 62, or 63 in 2025.
  • U.S. Federal Income Tax:
    • For withholding based on a pre-2020 Form W-4, Employee’s Withholding Certificate, the annual amount to add to a nonresident alien's taxable wages prior to calculating withholding has increased from $10,300 to $10,700.
    • For withholding based on a 2020 Form W-4, the annual amount to add to a nonresident alien's taxable wages prior to calculating withholding has increased from $14,600 to $15,000.
    • The standard and high-income tax tables for all marital statuses have changed.

U.S. Territory Taxes

  • Puerto Rico 401 (k) Wage Limits:
    • The pre-tax contribution limit has changed.
    •  The pre-tax contribution limit for U.S. federal employees has increased from $23,000 to $23,500.
    • The catch-up contribution limit for Puerto Rico plans that cover U.S. federal government employees will remain $7,500.
    • Datamart Query:  Tax State = RQ

State Taxes

  • Arkansas Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025. 
    • The standard deduction amount has increased from $2,340 to $2,410.
    • The standard tax table has been changed.
    • The tax credit formula for employees who qualify for the low-income tax tables has been modified.
    • Datamart Query: Tax State = 05
  • California Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025. 
    • The low-income exemption amount for Married with zero or one exemption and Single has increased from $17,769 to $18,368.
    • The low-income exemption amount for Married with two or more exemptions and Head of Household has increased from $35,538 to $36,736.
    • The standard deduction for Married with zero or one exemption and Single has increased from $5,363 to $5,540.
    • The standard deduction for Married with two or more exemptions and Head of Household has increased from $10,726 to $11,080.
    • The Single, Married, and Head of Household tax tables have changed.
    • The annual personal exemption credit has increased from $158.40 to $163.90.
    • Datamart Query: Tax State = 06
  • Hawaii Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025.
    • A new extra lump sum withholding allowance has been added to the formula.
      • The amount is $1,650.
    • The Single and Married tax tables have changed.
    • Datamart Query: Tax State = 15
  • Indiana Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025.
    • The state tax rate has changed from 3.05% to 3%. 
    • Datamart Query: Tax State = 18
  • Iowa Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025.
    • The flat tax rate on supplemental wages has changed from 6.0% to 3.8%.
    • The standard deduction is now based on the employee's marital status instead of the allowances amount claimed on the IA W-4 form. 
    • Marital status was not previously used in the calculation of Iowa tax.
      • The rate table has been removed and replaced with a flat tax equal to 3.8%.
    • Employees who have not submitted a 2024 or later IA W-4 Form can now have additional tax withheld if it was elected on a previous IA W-4 Form.
    • Datamart Query: Tax State = 19
  • Kentucky Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025. 
    • The annual standard deduction has increased from $3,160 to $3,270.
    • Datamart Query: Tax State = 21
  • Maine Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025. 
    • The annual exemption per allowance claimed has increased from $5,000 to $5,150.
    • The Single and Married standard deduction tables have changed.
    • The Single and Married tax tables have changed.
    • Datamart Query: Tax State = 23
  • Massachusetts Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025.
    • The estimated annual wage amount at which supplemental wages are subject to a higher tax rate has increased from $1,053,750 to $1,083,150.
    • The tax table has changed.
    • Datamart Query: Tax State = 25
  • Michigan Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025. 
    • The annual amount per exemption has increased from $5,600 to $5,800.
    • Datamart Query: Tax State = 26
  • Mississippi Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025. 
    • The income tax table has changed.
    • Datamart Query: Tax State = 28
  • Missouri Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025. 
    • The flat tax rate for supplemental wages has changed from 4.80% to 4.70%.
    • The standard deduction amount for employees claiming Single, Married Filing Separate, and Married and Spouse Works has increased from $14,600 to $15,000.
    • The standard deduction amount for employees claiming Married and Spouse Does Not Work has increased from $29,200 to $30,000.
    • The standard deduction amount for employees claiming Head of Household has increased from $21,900 to $22,500.
    • The income tax table has changed.
    • Datamart Query: Tax State = 29
  • Nebraska Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025. 
    • The annual amount per withholding allowance has increased from $2,250 to $2,360.
    • The Single and Head of Household tax tables have changed.
    • The Married tax table has changed.
    • Datamart Query: Tax State = 31
  • New Mexico Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025. 
    • The Single, Married, and Head of Household tax tables have changed.
    • Datamart Query: Tax State = 35
  • Rhode Island Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025. 
    • The annualized wage threshold where the annual exemption amount has increased from $274,650 to $283,250.
    • The tax table has changed.
    • Datamart Query: Tax State = 44
  • South Carolina Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025.
    • The flat tax rate on supplemental wages has changed from 6.4% to 6.2%.
    • The deduction per personal exemption has increased from $4,610 to $4,860.
    • The maximum standard deduction in case of any exemptions has increased from $6,925 to $7,300.
    • The tax table has changed.
    • Datamart Query: Tax State = 45
  • West Virginia Income Tax Withholding:
    • The state income tax withholding formula has changed effective January 1, 2025.
    • The Two Earner/Two Jobs and Optional One Earner/One Job tables have changed.
    • Datamart Query: Tax State = 54

Local Taxes

  • Indiana Local Income Tax Withholding:
    • Floyd County:
      • The tax rate has changed from 1.39% to 1.89%.
      • Datamart Query: Tax State = 18 County Code = 043
    • Monroe County:
      • The tax rate has changed from 2.035% to 2.14%.
      • Datamart Query: Tax State = 18 County Code = 105
    • Switzerland County:
      • The tax rate has changed from 1.25% to 1.89%.
      • Datamart Query: Tax State = 18 County Code = 155
  • Kentucky Local Income Tax Withholding:
    • Boone County:
      • The taxable wage base is increasing from $75,223 to $77,400.
      • The employee tax rate remains at 0.8%.
      • The maximum tax is $619.20.
      • Datamart Query: Tax State = 21 County Code = 015
    • City of Florence:
      • The maximum withholding wage base has increased from $168,600 to $176,100 to coincide with the 2025 Federal OASDI wage base.
      • The payroll tax rate remains at 2%.
      • The maximum tax is $3,522.
      • Datamart Query: Tax State = 21 City Code = 1150
    • Kenton County:
      • The maximum withholding wage base has increased from $168,600 to $176,100 to coincide with the 2025 Federal OASDI wage base.
      • The payroll tax rate remains at 0.6997%.
      • The maximum tax is $1,232.17.
      • Datamart Query: Tax State = 21 County Code = 117

You may execute Datamart queries to identify employees in affected state taxing areas. For Combined File Ad-Hoc query/analysis of applicable States: add STE Tax State 1 = (State Code above) or STE Tax State 2 = (State Code above) to the filter or prompt lines. Another option is the shared Datamart report titled “State Tax Code Report” (State Tax Code Query Now Available). For local tax queries-see above for the applicable Local Tax State and/or Local Tax City Codes to add to the prompt lines (Occurrences – Other PE Pay).

The Interior Business Center (IBC) Payroll website is updated frequently; you may view the state tax formulas here: Federal, State, and Territorial Income Tax Withholding Formulas.

If there are any questions, please contact the IBC Customer Support Center at Payroll_Helpdesk@ios.doi.gov or 866-367-1272.

 

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