Key Changes to Social Security in 2025: Wage Base Increase, COLA Adjustments, and More

The Social Security Administration has announced several significant changes for 2025 that will impact both workers and beneficiaries. One of the key changes is the increase in the Social Security wage base. For 2025, the wage base for computing Social Security tax will rise to $176,100, up from $168,600 in 2024. This means that wages and self-employment income above $176,100 will not be subject to Social Security tax.

Employees will pay 6.2% Social Security tax on the first $176,100 of their wages, resulting in a maximum tax of $10,918.20. Employers will match this amount. Additionally, employees will pay 1.45% Medicare tax on all their wages, with no maximum limit. For wages exceeding $200,000 ($250,000 for joint returns and $125,000 for married taxpayers filing separately), an additional 0.9% Medicare tax will be applied.

Self-employed individuals will face a 12.4% Social Security tax on the first $176,100 of their self-employment income, with a maximum tax of $21,836.40. They will also pay 2.90% Medicare tax on their self-employment income, with an additional 0.9% tax on income exceeding $200,000.

For beneficiaries, the Cost of Living Adjustment (COLA) for 2025 will result in a 2.5% increase in Social Security benefits. This adjustment is based on the 2.5% increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) over the third quarter of 2024. The average monthly Social Security payment is expected to increase by nearly $50, from $1,927 in 2024 to $1,976 in 2025.

The maximum monthly Social Security benefit for new retirees will also increase, rising from $4,873 in 2024 to $5,108 in 2025. Additionally, retirees can earn more before Social Security benefits are withheld. For those who have not reached full retirement age, $1 will be withheld for every $2 earned above $23,400, and for those reaching full retirement age during the year, $1 will be withheld for every $3 earned above $62,160.