The following changes will affect monthly benefits as well as Social Security payroll taxes.
October is the start of the fourth quarter of the year. It’s also when the Social Security Administration begins releasing key changes for the following year. Retirees may get annoyed at the constant changes around the program, but some changes work out in their favor.
The two most important figures that the Social Security Administration (SSA) just released that retirees should know going into 2025 are the cost-of-living adjustment (COLA) and the higher wage base limit.
These two figures have implications for current Social Security recipients as well as those who have yet to claim benefits. Here’s what you should know about them.
Image source: Getty Images.
What the Social Security COLA is
For better or worse, inflation is a reality in the economy. To help offset these rising prices, the SSA adjusts monthly benefits by a certain percentage each year (with a few exceptions).
To determine the annual COLA, it uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This measures the costs of common goods and services purchased by hourly and office workers, such as groceries, transportation, and household items.
The SSA takes the average CPI-W for the three months in the third quarter (July, August, and September), compares it to the previous year’s third quarter, and uses the percentage difference to set the COLA.
What benefits increase Social Security recipients can expect in 2025
The COLA for 2025 is 2.5%. That figure has good news and could-be-better news attached to it. The could-be-better news is that the 2.5% COLA is below average and the lowest increase since 2021. The good news is that it means inflation has cooled down a bit.
Below are the past 10 COLAs:
| Year | COLA |
|---|---|
| 2024 | 3.2% |
| 2023 | 8.7% |
| 2022 | 5.9% |
| 2021 | 1.3% |
| 2020 | 1.6% |
| 2019 | 2.8% |
| 2018 | 2% |
| 2017 | 0.3% |
| 2016 | 0% |
| 2015 | 1.7% |
Source: Social Security Administration.
If you notice, 2016’s COLA was 0%. This happens when the CPI-W data from one year is the same or lower than the previous year’s CPI-W data.
The program will never reduce monthly benefits if the CPI-W data comes in the same or lower; it will only increase benefits with a CPI-W increase.
The 2025 wage base limit is higher
The annual wage base limit is the maximum amount of your income subject to Social Security payroll taxes. For 2025, the new wage base limit is $176,100. This means any dollar over that amount is exempt from Social Security payroll taxes, which are either 6.2% if you have an employer or 12.4% if you’re self-employed.
To determine the annual wage base limit, the SSA uses the national average wage index (NAWI), which measures the average annual wages for workers covered under Social Security.
The most recent year’s NAWI is compared to the year before to determine if an increase will be made. Like the COLA, if the number is the same or lower, the wage base limit will remain the same. It will never go lower.
Below are the previous 10 wage base limits:
| Year | Wage Base Limit |
|---|---|
| 2024 | $168,600 |
| 2023 | $160,200 |
| 2022 | $147,000 |
| 2021 | $142,800 |
| 2020 | $137,700 |
| 2019 | $132,900 |
| 2018 | $128,400 |
| 2017 | $127,200 |
| 2016 | $118,500 |
| 2015 | $118,500 |
Source: Social Security Administration.
Why you should care about the wage base limit
The tax implications are the most direct reason for caring about the wage base limit. If your earnings are around that amount, a change in the wage base limit could affect how much you owe in Social Security taxes.
For example, if you’re going to earn $175,000 in 2024, $6,400 would be exempt from Social Security payroll taxes. However, if you make that much in 2025, all of it will be subject to payroll taxes because it’s below the wage base limit.
The second reason to care about the wage base limit is because it determines if you’re eligible to receive the maximum Social Security benefit whenever you decide to claim.
Besides delaying claiming benefits until 70, you’ll need to earn at least the wage base limit in each of the 35 years that the SSA uses to calculate your benefit.
If you’re aiming to receive the maximum monthly benefit, you’ll need to be vigilant about having earnings above the wage base limit (though that’s admittedly easier said than done).