2025 is set to bring some big changes to Social Security. Some of these are positive, such as the 2.8 million Americans who will receive larger benefits thanks to the passage of the Social Security Fairness Act.
However, not all Social Security changes expected this year are something to smile about. The following two changes could be difficult for some workers and retirees to swallow.
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1. Increased Social Security payroll tax for high earners
The Social Security taxable wage base increased from $168,600 in 2024 to $176,100 in 2025. This is the amount of your annual income subject to Social Security payroll taxes if you’re working. The tax rate is currently 12.4%, but if you’re traditionally employed, you only pay half of that while your employer covers the other half.
Most workers won’t be affected by this change since most people don’t earn $176,100 in a year. In that case, you’re used to paying Social Security taxes on all your income, and 2025 won’t be any different. But high earners could notice a change.
A 12.4% tax on an extra $7,500 could cost them another $930 in 2025. Those with incomes well into the six figures could expect to pay even more in future years as the taxable wage base continues to rise. This tax could get a lot more painful if the government moves to significantly raise or eliminate the taxable wage base in order to reduce Social Security’s funding shortfall. But for now, that remains a suggestion rather than a certainty.
2. A cost-of-living adjustment (COLA) that short-changes retirees
The 2025 Social Security cost-of-living adjustment (COLA) came in at 2.5%. That’s the smallest COLA since 2020 and will only add about $49 to the average retiree’s monthly check. It’s better than nothing, but many seniors who rely heavily on their benefits can tell you it’s not enough.
In spite of regular COLAs, Social Security has lost 20% of its buying power since 2010, according to The Senior Citizens League (TSCL). The typical retiree would need another $4,442 per year in order for their checks to have the same buying power as they did 15 years ago.
A big part of the problem is the way the government calculates COLAs. Right now, it uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate the change in inflation from one year to the next. However, this index only looks at wage earners, not retirees. They’re tracked in a separate index known as the Consumer Price Index for the Elderly (CPI-E).
If the Social Security Administration had used the CPI-E to calculate the 2025 COLA, seniors would have gotten a 3% raise instead of 2.5%. That would’ve increased the average check by $58 per month.
There are those in government who want the Social Security Administration to make the switch to the CPI-E, but so far, they’ve had trouble getting others on board. Part of this is due to Social Security’s looming insolvency. Anything that would increase payable benefits — like larger COLAs — would also accelerate the insolvency date. So, it’s unlikely this change will occur until the government addresses the shortfall.
In the meantime, it’s largely down to seniors to figure out how to stretch their dollars the furthest. Claiming strategically, if you haven’t already applied, is helpful. Having other sources of retirement income can also go a long way toward improving your financial security.
