5 Key Changes to Social Security in 2025

Every year, we see changes in the Social Security system. Next year, with a new administration coming into the White House, there has been a lot of buzz around Social Security, everything from what can be done to save it to cutting taxes on Social Security entirely. Although there is a lot of speculation, a few changes to Social Security in 2025 have already been confirmed.

In this article, we’ll take you through the changes to Social Security for 2025 that have already been announced. Knowing what these changes are may help you prepare your budget and Social Security planning in 2025. Make sure you read through to the end, so you don’t miss anything!

 

Here are the 5 Key Changes to Social Security in 2025

1. Cost of Living Adjustment (COLA)

After years of high inflation, we have seen record-high cost of living adjustments in recent years. You may also hear these referred to as “COLAs.” Fortunately, there will be a COLA for 2025, though it will not be nearly as large as those we’ve seen in past years. In 2025, you can expect to see a 2.5% increase for your COLA.

2. FICA Tax Adjustment

The COLA isn’t the only place you’ll see an adjustment up. For those of you who are still working, you can expect a FICA adjustment as well. FICA is a U.S. federal payroll tax that pays into the Social Security and Medicare fund. It is paid jointly by the employer and the employee. The 2024 FICA tax rate was 12.4% in total, and in 2025, this rate will increase.

In the FICA process, they look at your earnings up to a specific amount, up to $176,100 if you’re a W2 employee. That means you’ll be taxed on FICA up to $176,100 if you’re a business owner or if you control your own salary. In many cases, if you have control of your salary, it doesn’t make sense to pay yourself via payroll higher than that because it doesn’t impact your Social Security benefits.

In addition to this, you may take partnership distributions or other distributions from your business. Since this makes it more complicated, it’s recommended that you work with a CPA on these questions. In any case, be aware that FICA will apply up to $176,100 of your wages.

3. Maximum Social Security Benefit Amount

Another change to Social Security coming in 2025 is an adjustment to the maximum Social Security benefit. The maximum Social Security benefit will rise from approximately $3,800, the 2024 maximum benefit, to $4,018. This change has already been confirmed for next year, so you can plan accordingly.

If you want to learn more about Social Security, get our Social Security guide for free! Just email us at retire@reapfinancial.com, with the words “YouTube Social Security Guide” in the subject line, and we’ll send it straight to your inbox.

4. Earnings Cap Increase – Under Full Retirement Age

There is also going to be an earnings cap increase and changes to the earnings test. For those of you who haven’t reached full retirement age and won’t reach full retirement age in 2025, you will start getting hit with an earnings test in 2025 if you earn over a certain amount. Right now, the earnings cap is $23,400. That means, if you make any amount over that before you reach full retirement age, they will subtract $1 for every $2 you make over that amount. To be clear, they would take $1 away from your Social Security check for every $2 you make over that $23,400 limit in 2025.

5. Earnings Cap Increase – At or Above Full Retirement Age

After you reach full retirement age, the rules are different, and they will be changing as we head into 2025. If you are already at full retirement age or you will reach full retirement age in 2025, you can make up to $62,160. This means you can earn more in the year you turn your full retirement age. However, you still have to stay under that $62,160 earnings cap to avoid the earnings test. When you reach full retirement age, the test reduces benefits by $1 for every $3 you earn above the limit.

If you’re receiving Social Security while you’re still working, you’ll receive your paycheck and Social Security throughout the year, then file taxes the next year. The Social Security office can then determine if you have exceeded the limit. If you earned over the limit, they will mail you a letter that demands you pay back what you owe or they will withhold your benefit check until they’ve recouped the amount. As you can imagine, it’s not a fun letter to get, so you should consult with a fiduciary adviser around your Social Security timing and take all of this into account when you do your retirement planning.

Plan Your Retirement Strategy with REAP Financial in Austin, Texas

Preparing for changes to Social Security is a critical component of retirement planning. At REAP Financial, we specialize in helping individuals and families design comprehensive retirement strategies that address Social Security timing, tax-efficient income planning, and long-term financial security.

If you’re in Austin, Texas, or the surrounding areas, our fiduciary advisers are here to help you create a plan tailored to your unique goals. From maximizing your Social Security benefits to building a robust retirement budget, we offer personalized guidance to help you achieve peace of mind in retirement.

Contact us today for a complimentary consultation and discover how we can support your financial planning journey.

Contact REAP Financial

Let us help you navigate the changes ahead and ensure your retirement plan stays on track.

Phone: (512) 249-7300
Email: retire@reapfinancial.com
Office Address: 9414 Anderson Mill Rd #100, Austin, TX 78729

Chris Heerlein, CEO of REAP Financial
CEO at  | 5122497300 | Website |  More Articles

Chris Heerlein, a Texas native, is the CEO of REAP Financial and founder of REAP Private Client Group (RPCG), specializing in wealth creation, preservation, and growth for affluent individuals, business owners, and executives. RPCG provides expert financial and investment advice, advanced tax strategies, business succession planning, and unparalleled client service. Chris is a trusted financial advisor, author of Divorce With Dignity (2019) and Money Won’t Buy Happiness But Time to Find It (2017), and a columnist for Kiplinger Personal Finance Magazine.

He has been featured in Fortune, Money Magazine, Bloomberg Businessweek, and U.S. News & World Report. Chris also hosts Wealth Radio on NewsRadio KLBJ and is a sought-after speaker. Based in Austin, Texas, he lives with his wife, Hannah, and their three children and actively supports charitable causes.

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