The Social Security Administration (SSA) has announced a higher threshold for earnings subject to Social Security payroll taxes. Set by the OASDI program, the limit usually rises each year due to changes in the national average wage index.
What You Need To Know
Also known as the wage base or maximum table earnings, the payroll tax limit is the maximum amount of your earnings that are subject to Social Security taxes; any earnings above the cap are exempt. Keep in mind that the payroll tax contributes about 90% to the total revenue collected by the Social Security program each year.
It’s estimated that only 6% of workers actually reach the taxable maximum earnings. As a result, 94% of workers won’t be affected by the increase for 2025. However, according to the SSA, an estimated 20% of current and future workers will earn above the taxable maximum in at least one year.
“This means workers will contribute 6.2% of their earnings to Social Security until their income exceeds $176,100.”
2025 Social Security Tax Limit Increases By 4.4%
Starting on January 1, 2025, the maximum earnings subject to Social Security taxes will rise from $168,600 to $176,100 which is an increase of 4.4%. This means workers will contribute 6.2% of their earnings to Social Security until their income exceeds $176,100. In general, federal workers pay 6.2% % of their earnings into the Social Security program and their agency pays 6.2% on their behalf until their salary exceeds the taxable maximum.
How The Tax Limit Affects Your Retirement Benefit
Not only does Social Security establish the maximum table earnings that are subject to the payroll tax, but it also limits how much you can receive monthly in retirement. If you’re planning on filing for Social Security in 2025, the maximum possible monthly benefit for a worker retiring at their Full Retirement Age (FRA) is $4,018.
2025 Social Security Earnings Test Increase
If you collect Social Security before your FRA and continue to work, you’ll be subject to the Social Security earnings limit established by the IRS. For 2025, the earnings limit will increase to $23,400. If you earn more than $23,400 while collecting benefits in 2025, $1 will be withheld from your benefit for every $2 that exceeds the earnings limit.
For those who reach their FRA in 2025 and continue to work while collecting benefits, you can earn up to $62,160 without a reduction of your benefit. If you earn more than $62,160 in 2025, $1 will be withheld for every $3 in earned income above the earnings limit for the months prior to turning your FRA.
Source: https://www.ssa.gov/news/press/factsheets/colafacts2025.pdf
