Social Security payroll tax limit rises in 2025

 News / Social Security payroll tax limit rises in 2025
Social Security payroll tax limit rises in 2025

In 2025, the Social Security payroll tax limit increases, impacting higher-income earners and self-employed workers. Here's what to expect.

 

According to the Social Security Administration, millions of retired Americans will receive a 2.5% cost-of-living adjustment (COLA) to their Social Security benefits in 2025. However, a lesser-known change will also harm higher-income workers.

On October 10, the Social Security Administration raised the taxable maximum, or "wage base," for Social Security payroll taxes. This limit is adjusted annually based on the national average pay index. In 2025, the wage base will rise by 4.4% to $176,100, up from $168,600 in 2024. Earnings above this level will not be subject to Social Security taxes, although Medicare taxes will apply.

This modification means that some employees will have higher payroll taxes withheld. Workers contribute 6.2% of their earnings to Social Security, while employers match this amount, for a total of 12.4%. In 2025, the maximum Social Security tax for employees will be $10,918.20. Once that limit is reached, they will no longer pay Social Security taxes for the remainder of the year.

Self-employed people will bear a larger burden because they are responsible for both the employee and employer halves of the tax, resulting in a total 12.4% contribution. Furthermore, self-employed workers pay both sides of the 2.9% Medicare tax, resulting in a combined 15.3% tax on Social Security and Medicare. Fortunately, they can deduct 50% of these taxes from their individual tax filings.

The modifications for 2025 come as concerns about Social Security's viability deepen. According to the trustees' report from May 2024, the trust funds that provide benefits may run out by 2035. Proposals to narrow this gap include raising the wage base or eliminating benefits, but political instability makes future changes difficult to predict.

 

 

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