The Social Security Administration has announced the cost-of-living adjustment (COLA) for 2025, which will impact the amount of a worker’s income subject to Social Security taxes. While the 12.4% tax on earnings remains the same, the maximum income subject to this tax will increase to $176,100 in 2025. Any earnings above this limit will not be taxed for Social Security purposes.
Over the past decade, the taxable maximum has steadily increased. In 2005, it was $90,000 a year. When the cap was $118,500 in 2015, any income above that amount escaped the Social Security tax net.
With the 2025 cap at $176,100, a larger portion of earnings will now be subject to Social Security taxes. While more of your earnings are stepping into the Social Security spotlight, this change also means that you’re eligible for higher future benefits. However, there is a cap on how much you can receive in Social Security payouts, so don’t expect unlimited returns on your contributions.
The Social Security trust funds are at risk of running out of money unless policymakers take further action to reform the program. One key topic in the debate is the payroll tax cap, with some suggesting raising this cap to cover a larger portion of wage and salary income. Expanding the payroll tax base to include all types of worker compensation could be a viable option to address this issue.
The 2025 update to the earnings limit is a significant change that will affect many Americans. While it may seem daunting, it’s a step towards ensuring the longevity and stability of Social Security for future generations. In 2025, all Social Security beneficiaries will see a 2.5% increase in their benefit checks due to the annual cost-of-living adjustment (COLA).
This is a drop from the 3.2% increase seen in 2024 and reflects a decrease in the pace of inflation. The change will be effective with the January checks for more than 72.5 million Americans, including Supplemental Security Income beneficiaries. The average worker retirement benefit will rise to $1,976 per month, up from $1,927 in 2024.
Monthly Medicare Part B premiums, often deducted directly from Social Security checks, are increasing in 2025. The standard monthly Part B premium will be $185, a $10.30 increase from $174.70 in 2024. The Part B deductible will also rise to $257, up from $240 in 2024.
Medicare Part D drug plans will now have an annual out-of-pocket cap of $2,000. Beneficiaries will pay out-of-pocket costs until they meet the deductible, which will be capped at $590 in 2025.
social security taxable income limit update
After meeting their deductible, beneficiaries will pay 25% of the cost of coinsurance until their out-of-pocket spending hits $2,000. Once that threshold is met, catastrophic coverage kicks in, and they won’t have to pay additional out-of-pocket Part D costs for the rest of the year. Beneficiaries can choose to pay these costs monthly over the course of the year instead of all at once.
Additionally, insulin costs are capped at $35 per month. The trustees projected in 2024 that the Social Security trust fund may be depleted by 2033, at which time only 79% of benefits could be payable unless Congress intervenes. Social Security’s combined trust funds, used for retirement and disability benefits, are projected to run out in 2035.
The new Social Security Fairness Act may move this depletion date six months closer. This issue suggests a need for comprehensive, bipartisan changes to multiple parts of the Social Security program. Recipients of Supplemental Security Income (SSI) are set for a somewhat unusual payment schedule in 2025 due to the way the days fall on the calendar.
This may bring some early deposits into their bank accounts. SSI benefits, which are typically distributed on the first of the month, will be issued early if the first falls on a weekend or a federal holiday. This is the case for January 2025, where recipients received their payment on December 31, 2024, instead of January 1, which is New Year’s Day and a federal holiday.
For most Social Security recipients, payments arrive each month on a Wednesday. The specific Wednesday depends on the recipient’s birthdate:
– Birthdates from the 1st to the 10th: Paid on the second Wednesday of the month. – Birthdates from the 11th to the 20th: Paid on the third Wednesday.
– Birthdates from the 21st to the 31st: Paid on the fourth Wednesday. The SSI payment schedule for 2025 includes several early and back-to-back payments due to how weekends and holidays fall:
– February: Payment arrives on January 31, 2025. – March: Payment arrives on February 28, 2025.
– May: Two payments – May 1 and May 30, 2025. – August: Two payments – August 1 and August 29, 2025. SSI recipients will experience several months, such as March and June, without receiving a payment within that calendar month due to these adjustments.
SSI, known as Supplemental Security Income, provides monthly payments to individuals with limited income or resources who are 65 or older, blind, or have a qualifying disability. Children with disabilities may also qualify for SSI benefits. For those who believe they may be eligible for SSI, the application process can begin online, in person at a local Social Security office, or by calling 1-800-772-1213 (TTY 1-800-325-0778) between 8:00 a.m. to 7:00 p.m. local time during the workweek.
