The Social Security Administration has announced several changes for 2025 that will impact millions of Americans. One of the most significant adjustments is the increase in the maximum amount of taxable earnings for Social Security. In 2025, the maximum amount of income subject to Social Security tax will rise from $168,600 to $176,100.
This means that higher earners will contribute more towards Social Security taxes. The 12.4 percent tax on workers’ earnings, split evenly between employees and employers, remains unchanged. Over the past decade, the maximum taxable income has been steadily increasing to keep pace with national wage trends.
This ensures that the Social Security system remains robust and responsive to economic shifts. For workers with multiple jobs, it is crucial to note that their employers must withhold Social Security taxes from their wages. This could result in the total Social Security taxes withheld exceeding the maximum limit.
In such cases, workers can claim a refund from the IRS for the excess Social Security taxes withheld when filing their tax returns.
Social Security tax increase details
Other changes for 2025 include a cost of living adjustment (COLA) of 2.5 percent for Social Security benefits, reflecting a decrease in inflation.
The average monthly Social Security retirement benefit will increase by $48, while workers with disabilities will see an average increase of $39. However, Medicare premiums are also set to rise from $174.70 to $185 per month. Since these premiums are deducted from Social Security pensions before reaching beneficiaries’ accounts, the net increase in benefits may feel smaller.
The Earnings Test Limit, which affects workers who continue to earn an income while receiving retirement benefits, is also increasing. For those who will not reach full retirement age in 2025, the earnings limit is $23,400, with a $1 reduction for every $2 earned over the limit. For those reaching full retirement age in 2025, the limit is $62,160, with a $1 reduction for every $3 earned over the limit.
Lastly, the Social Security Administration is increasing the maximum benefit amount for retirees. In 2025, the maximum retirement benefit will rise from $4,873 in 2024 to $5,108 per month. To qualify for this maximum benefit, recipients must meet strict eligibility criteria, including working for at least 35 years, earning at or above the maximum taxable limit, and delaying benefits until age 70.
As Americans prepare for these changes, it is essential to stay informed and plan accordingly to ensure a stable financial future.
