Economic conditions change frequently. No one knows this better than the Social Security Administration. Their benefit payments are adjusted annually as the cost-of-living increases. This article will explain how that affects your financial well-being. It also outlines other social security changes made for 2025. Some key takeaways to look for include:
- Your 2025 Social Security cost of living adjustment (COLA) is 2.5%.
- The maximum taxable earnings cap for 12.4% Social Security payroll tax has been increased from $168,600 to $176,100 for 2025
- Annual earnings thresholds for early filers have been increased to $23,400.
Change #1: A 2.5% COLA increase in benefit payments
A cost-of-living adjustment (COLA) to social security benefits is typically done annually. In 2025, recipients can expect a 2.5% raise beginning at the end of January. This is slightly higher than the annual average inflation rate for 2024 (2.2%), but lower than the 2024 COLA increase of 3.2%. Fortunately, that means that inflation is once again at a manageable pace.
To put this in perspective, the 2023 COLA was 8.7%, the largest increase in over forty years. The inflation rate the previous year was 8.3%, so the COLA was set to compensate for rising prices. The average social security benefit was $1,667 per month prior to that raise. For 2025, that average is up to $1976 per month, a significant three-year increase.
Change #2: Maximum taxable earnings cap increase
The maximum taxable earnings cap is the limit at which the IRS no longer taxes you 12.4% for social security. Last year’s cap was $168,600. If you make less than that, you can ignore this section. For those making more, the maximum taxable earnings cap has been increased to $176,100 for 2025. That’s an increase of $930 in payroll tax if you’re self-employed.
Increasing the cap helps cover the COLA increases, but that’s not the only reason. This is a step toward fending off social security insolvency. That doesn’t mean they’ll go broke. Insolvency in this case equates to a 21% cut in benefits by 2033. Taxing an additional $9,500 on the 6% of Americans in higher income brackets is a small step toward avoiding that.
Change #3: Maximum monthly benefit increases
This one looks good on paper, but it only affects 2% of American workers. The maximum monthly benefit at full retirement age is increasing from $3,822 per month to $4,018. That’s the good news. The bad news is that you must have met or exceeded the maximum taxable earnings cap in all thirty-five of the years Social Security uses to calculate your benefit.
The average annual income in the United States is hovering around $37,000. That will earn you a monthly social security benefit of $1,300. Individuals making $75K to $100K can expect between $2,400 and $2,650. Those benefits will increase each year with COLA, but this change does not affect them. The next change might be more intriguing to you.
Change #4: Early filer benefit withholding thresholds
Workers who file early for social security benefits are subject to additional withholding on any income they earn. In 2024, early filers were subject to $1 in benefits withheld for every $2 they earned over $22,320, or $1,860 per month. That threshold is increasing to $23,400 in 2025 ($1,950 per month). Add that to the average benefit check of $1,976. Can you live on that?
It’s an important question. Franklin Delano Roosevelt, the US President who signed the Social Security Act in 1935, told the country not to treat it as a panacea (all-in-one solution) for retirement income. It’s meant to be a supplement to other earnings. Speak with one of our accountants or a financial advisor to learn more about retirement planning.
Change #5: Income thresholds for workers with disabilities
Workers with disabilities receiving Social Security benefits (SSDI) are also going to see an increase in their income threshold this year. Non-blind workers with disabilities are allowed to earn an additional $70 per month, increasing the additional income threshold to $1,620 per month. Blind workers taking disability payments can make up to $2,700 extra.
10.9 million Americans are receiving Social Security Disability Insurance (SSDI) benefits every month, so this change is impactful. 12.4% of those recipients are disabled adult children who had a qualifying disability before their 22nd birthday. 2.4% are widows. These individuals represent the most vulnerable part of our population.
Change #6: Earned income credits to receive benefits
Social security benefits are not a right or privilege. They must be earned. You’re required to earn forty earned income credits to qualify, and you can only earn four per year. The 2024 rule had the value of those credits set at $1,730, a total annual income of $6,920 if you work all four quarters. In 2025, you get an earned income credit for every $1,810 earned.
This change primarily affects part-time or seasonal workers. The federal minimum wage (and minimum wage in Wisconsin) is $7.25 per hour. Twenty hours at that rate would earn you $145 per week. Multiply that by thirteen to get your quarterly income and you’re looking at $1,885. That’s a close margin for folks in the lowest income bracket.
Conclusion
Social security benefits can be a good supplement to a more traditional retirement income from an employer-sponsored defined contribution plan like a 401(k) or 403(b). They can also add additional income to a defined benefit payout like a pension. They are not, and were never meant to be, your only source of income in retirement.
Careful retirement planning can help you maximize your social security benefits. It’s also important to understand the tax implications of adding social security to your earnings while still working or taking retirement income from other sources. If you need help with this, use the contact page on this website to reach out to us. Our team is standing by to assist you.