In 2025, several significant changes will affect our finances, particularly when it comes to Social Security taxes. While the 12.4 percent tax on workers’ earnings remains unchanged, there will be an increase in the maximum income that is subject to taxation. This tax, which is split equally between workers and employers (each paying 6.2 percent), has been consistent since 1990. However, the maximum amount of income that can be taxed has gradually risen over time, and this trend will continue in 2025. These adjustments will have a direct impact on workers’ take-home pay and contribute to funding the Social Security program.
Social Security Income Limit for 2025: What You Need to Know
In 2025, the maximum income subject to Social Security tax will be $176,100. Earnings above this threshold will not be taxed for Social Security purposes. For workers holding multiple jobs, each employer is required to withhold Social Security taxes from the employee’s wages. As a result, the total amount of Social Security taxes withheld could surpass the maximum limit. However, when filing tax returns, workers can claim a refund from the IRS for any excess Social Security taxes that were withheld.
This adjustment to the maximum taxable income is important for high earners, as it means they will contribute more to Social Security in 2025 than in previous years. While the increase in the maximum income limit may not affect everyone, those earning above the new threshold will see a larger portion of their wages taxed. On the other hand, workers who earn less than $176,100 will not see any change in their Social Security tax burden.
Other expected changes for 2025
Next year, Social Security payments are expected to increase by 2.5%. This is due to the new cost-of-living-adjustment (COLA) statistic which was announced in October of this year. The new COLA is the lowest it has been since the start of the COVID-19 pandemic, indicating that cost-of-living may finally be stabilizing. Since the pandemic begun, prices and expenses have been sporadic and sky-rocketing and have stayed there even with the world beginning to leave COVID-19 behind us.
2025 will also see President-elect Donald Trump serve his second term in office. Trump’s presidency has raised questions about changes (or lack thereof) to Social Security payments. With the Social Security fund expected to be depleted by the beginning of the 2030s, immediate action is needed by congress to increase the longevity of the fund. This could involve either decreasing payment amounts to current recipients or raising Social Security taxes. However, Trump has promised that no changes will come to beneficiaries payments during his presidency, meaning that the next four years remains uncertain for the time being with regards to Social Security payment changes.
New Fairness Act to be implemented in 2025
Next year will also see the new Fairness Act be implemented. The new bill seeks to eliminate the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), which currently reduce Social Security benefits for workers in specific careers, such as teachers or firefighters, who also receive a pension. If passed, the removal of these provisions will result in increased Social Security payments for these individuals, ensuring they receive the full benefits they are entitled to.
The Fairness Act has been met with its critics, with some raising concerns that it may affect the stability of the already depleting Social Security fund. One thing is for certain though: 2025 is set to be a tumultuous year of changes for not only Social Security but other financial programs. Reforms to student loan forgiveness programs are expected to be made as well as new tariffs on imports expected to implemented once the Trump administration takes office.
