Starting January 1, 2025, Social Security will increase the amount of money that people with higher earnings may need to pay in taxes. This change is important to know, especially if you are earning more than $168,600.
The new taxable maximum will rise to $176,100, which means you may pay more in payroll taxes if you make over that amount. Let’s dive deeper into what this change means and how it will affect you.
What Is the Taxable Maximum?
The taxable maximum refers to the highest amount of money you can earn in a year before you have to pay Social Security payroll taxes. Once you make more than this amount, you won’t pay any taxes on the extra money.
In 2024, this taxable maximum is $168,600, but in 2025, it will rise to $176,100. This means that if you make more than this amount in 2025, you will only be taxed on the earnings up to $176,100.
How Much Will You Pay in Taxes?
If you make $168,600 in 2024, you will pay up to $10,453 in Social Security taxes. This amount comes from both the employee and employer contributions, which are 6.2% each.
However, if you make more than $176,100 in 2025, you will need to pay an extra $465 per year. This adds up to $10,918 in taxes for those who make above $176,100, meaning that higher earners will pay a bit more.
Social Security’s COLA and Taxable Maximum Changes
While Social Security payments for retirees will increase by about 2.5% in 2025 (due to the Cost-of-Living Adjustment, or COLA), the taxable maximum is growing by a much higher percentage of 4.45%. This means that the change in taxes will affect people who earn a lot more than most.
Historical Changes to the Taxable Maximum
Over the last ten years, the taxable maximum has been increasing gradually. Here’s how it looked from 2015 to 2025:
- 2015: $118,500
- 2016: $118,500
- 2017: $127,200
- 2018: $128,400
- 2019: $132,900
- 2020: $137,700
- 2021: $142,800
- 2022: $147,000
- 2023: $160,200
- 2024: $168,600
- 2025: $176,100
As you can see, the taxable maximum has been steadily increasing, and 2025 will see another significant jump.
Why Does This Matter?
For people who earn above the taxable maximum, they need to be aware of how this change will affect their income taxes.
It’s important to plan for the extra taxes starting in 2025, especially for people who are already making a lot of money. While it might seem like a small increase for high earners, it can add up over time.
In 2025, the taxable maximum for Social Security will increase to $176,100. This means that workers making above this amount will pay more in payroll taxes, with the total tax increase being around $465 per year for high earners.
Understanding these changes can help people plan for the extra taxes they will need to pay and prepare their budgets for the future.
1. What is the taxable maximum?
The taxable maximum is the highest amount of money you can make in a year before you start paying Social Security taxes on it. Any earnings above this amount are not taxed for Social Security.
How much will I pay in taxes in 2025?
If you make more than $176,100 in 2025, you will pay 6.2% of your earnings up to that amount. If you make exactly $176,100, you’ll pay approximately $10,918 in Social Security taxes.
Why is the taxable maximum increasing?
The taxable maximum increases each year to keep up with inflation and wage growth, ensuring Social Security can continue to receive funding from a wide range of income earners.
How do these changes affect Social Security payments?
Retirees will see a 2.5% increase in their Social Security payments in 2025. However, the taxable maximum is increasing by a larger percentage, which means higher taxes for those earning above the threshold.
How does the increase in taxable maximum affect people on a tight budget?
For those earning close to the taxable maximum, the increase in taxes could be significant, potentially impacting their budget. It’s important for higher earners to plan for this change in 2025.
