The Social Security Administration recently announced the cost-of-living adjustment (COLA) for 2025, and beneficiaries can expect a 2.5% raise (amounting to around $50 per month for the average retiree) heading into next year.
But that’s not the only change coming for Social Security. A new year brings a slew of new income limits that could affect your benefit in several ways.
While many of these changes will increase your monthly payment, some are not quite as beneficial — especially if you’re a higher-earning worker. Here’s what you can expect heading into 2025.
One big change affecting workers
One income limit directly affecting your benefit amount is the maximum taxable earnings limit. This cap is the highest annual income subject to Social Security tax, and the closer your wages are to this limit, the higher your benefit will be.
In 2024, the cap is $168,600 per year. Beginning in January 2025, though, it will increase to $176,100 per year. It’s normal for the earnings limit to increase most years, as it’s designed to keep pace with cost-of-living changes. For context, 20 years ago in 2004, the limit was only $87,900 per year.
However, while these limits affect everyone, they can have a more significant impact on higher-earning individuals. If your earnings land at or above the limit, you’ll face taxes on more of your income year after year.
The increase in 2025 will perhaps have the biggest impact on those earning between $168,600 and $176,100 per year, as you’ll face Social Security tax on income that wasn’t previously taxed in 2024. At the current payroll tax rate of 12.4% (which includes both the employer and employee tax), that additional $7,500 in income will result in a tax bump of $930 per year.
The good news about higher income limits
While paying more in taxes may not be ideal, the silver lining is that it will result in a larger benefit down the road — and you may even be able to snag the maximum monthly checks.
In 2025, the maximum Social Security payment will be increasing from $4,873 per month to a whopping $5,108 per month. To earn this payment, there are three requirements you’ll need to meet: work for at least 35 years, delay claiming benefits until age 70, and consistently reach the maximum taxable earnings limit.
As the wage cap continues to rise year after year, it becomes more difficult to earn the highest possible Social Security benefit. But if you’re earning enough to reach that income limit, you’ve already met what could be considered the most challenging hurdle to collecting this benefit.
Simpler ways to boost your benefit
What if you’re not earning anywhere close to $176,100 per year? While that will unfortunately disqualify you from the maximum payment, you can still take steps to increase your benefit amount.
Delaying claiming benefits is one way to earn higher payments. For every month you wait past age 62, you’ll receive a slightly larger check. Filing at your full retirement age (which is between ages 66 and 67, depending on your birth year) will earn you 100% of your benefit, while waiting until age 70 will result in a bonus of at least 24% on top of your full payment.
The average retiree collects around $1,298 per month in benefits at age 62, according to December 2023 data from the Social Security Administration. At ages 67 and 70, that average jumps to $1,884 per month and $2,038 per month, respectively. Even if you can only delay benefits by a year or two, it can substantially increase the size of your checks.
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Working longer than 35 years is another option for boosting your payments. The first step of calculating your benefit involves taking an average of your wages throughout the 35 years of your career that you earned the most.
Chances are you’re probably earning more now than you were 35 years ago. Because only the top-earning years are included in your average, working more years with a higher income can replace some of the lower-earning years in your calculation — resulting in a larger benefit.
A higher maximum earnings limit in 2025 may raise your tax bill if you’re a high earner, but it will also bring you closer to a larger maximum benefit amount for Social Security. Even if you’re off track for that payment, small steps can go a long way toward boosting your checks each month.
