Even though 2025 is coming up quickly, you can still find out how the changes to Social Security will affect your benefits when they start in January. Not all changes are good for the people who receive them, but that’s even more reason to learn about the problems and solve them before they hurt you.
A higher maximum taxable earnings limit
Payroll taxes have a cap on how much you can earn before you have to pay Social Security taxes on it. This cap is usually called the “maximum taxable earnings limit.” This limit was set at $168,600 per year in 2024.
Any income above this amount would not be taxed by Social Security. In 2025, it will rise to $176,100 per year.
In other words, workers will have to pay taxes on a bigger chunk of their pay. At the current tax rate of 12.4%, that’s an extra $7,500 a year for those who want to do the math. This means that payroll taxes will go up by $930 a year.
The only good thing about this is that it only affects a few taxpayers, since most of them already pay taxes on all of their income.
A new COLA is coming
The cost-of-living adjustment (COLA) increase that will happen to all benefits in January is the most important news for people who get benefits. The raise, which was announced in October, will only be 2.5% in 2025, which is a lot less than what was expected.
There will be an average change of just under $50 since the average retirement benefit paid by the Social Security Administration (SSA) is $1907 per year.
The good news is that a lower COLA means that inflation is going down, but the bad news is that Medicare Part B premiums are going up by $10, and all the money that people saved trying to make ends meet since the pandemic has been lost.
Higher earnings test limits can boost your benefit
A lot of retirees might not know that they can work and still get benefits from Social Security. If they do, they should know that if they make more than a certain amount, their check will be smaller. This is the limit for the earnings test.
One is for people who are younger than your full retirement age (FRA), and the other is for people who will reach FRA in 2025. For people under FRA, the annual income limit will go up from $22,320 to $23,400. If you make more than that, your benefits will go down by $1 for every $2 you make over the limit.
The income limit for people reaching FRA in 2025 will go up from $59,520 per year to $62,160 per year. For every $3 you make over the limit, your benefits will go down by $1.
The cuts to your benefits won’t last forever; they will be added back to your payments as soon as you turn your FRA and the earnings test limit stops applying.
The maximum Social Security retirement benefit will rise
To get the most out of Social Security, you have to work for at least 35 years and earn the maximum amount of money that is taxed for each year. You also have to wait until you turn 70 years old to start getting benefits.
There is a maximum benefit amount that can be paid at each retirement age. Based on your record, FRA is the highest benefit amount, but if you wait until age 70, your benefit amount will rise by 8% every year. You will get a bigger benefit without having to do anything else besides wait.
This benefit’s highest amount will go up from $4,873 per month to $5,108 per month in 2025. The other limits will also go up. For example, the most people who can retire and get benefits at FRA will be able to get will go from $3,822 in 2024 to $4,018 in 2025.