As the end of the year draws near, the Social Security Administration has made some big changes that will transform Social Security benefits for the coming year.
The rules for Social Security can change, even though it has been around for almost 100 years. In fact, there will be a lot of big changes to Social Security in the coming year.
Also, those changes will not affect all retirees who are already getting Social Security benefits. They might still have an effect on you even if you are not close to retiring. You should know about these things that will happen in 2025.
Important changes that will impact Social Security benefits in less than 2 months
Earnings-test limits for getting Social Security benefits will rise
It is legal for seniors who get Social Security to work and get paid for it. Additionally, once you reach full retirement age, which is 67 if you were born in 1960 or later, you can work for any amount of money without having a portion of your monthly Social Security benefits taken out.
But if you work and get benefits before you reach full retirement age, you need to make sure that your income does not go over the earnings test limit.
In 2024, the maximum amount of money that would not count toward Social Security was $22,320. In 2025, it will be $23,400. Your Social Security income will go down by $1 for every $2 over that limit.
What is more, if you are not yet full retirement age at the start of 2025 but will be at any point that year, you will get a much higher earnings level. Then it is $62,160, which is more than the 2024 amount of $59,520.
After that, $1 will be taken out of your Social Security for every $3 you make over that amount. It is also important to know that advantages that are taken away are not lost forever.
If you make more than the earnings-test limit in 2025, you will first get smaller monthly checks. But once those benefits that were held back are given back to you, your checks should go up when you reach full retirement age.
Social Security benefits will increase thanks to COLA
Every year, Social Security benefits are changed to reflect the cost of living. Because of inflation, living costs are going up, and COLAs are meant to help people keep their purchasing power. In 2025, Social Security payments will go up by 2.5%.
This is the smallest cost of living adjustment (COLA) that has been announced in a long time. There is some good news, though.
As the rate of inflation slows, seniors may benefit from lower prices on food, gas, utilities, and other costs, but they may lose out on a bigger Social Security increase.
Increases in Social Security’s wage cap
It is not a must that you pay Social Security taxes on your whole paycheck. A wage cap decides how much income is taxed each year to pay for the program. The most you could earn in 2024 was $168,600. In 2025, it is $176,100.
In other words, if you make $200,000 a year, you will not have to pay taxes on the last $23,900 of your income for Social Security. The amount of Social Security tax people who make $176,100 a year will have to pay will be the same as those who make millions of dollars.
Some lawmakers are working to change or get rid of the pay cap because they think it is unfair. But it is not easy to do because the most you can get from Social Security each month is tied to the most you can earn in taxable wages.
The earnings threshold for work credits under Social Security will be raised
To be eligible for Social Security as a retiree, you must earn 40 labor credits over the course of your lifetime, or up to four credits per year. In 2025, a labor credit is worth $1,810, up from $1,730 in 2024.
To get your four work credits for the year, you need to make sure that you make at least $7,240 a month. Most of the time, this change will not affect people who work full-time. But it is important to remember if you work part-time or as a gig worker.
It is important to stay up to date on Social Security news because at least one of these changes could affect you in 2025.
Also, because you will be taxed on a larger portion of your wages for Social Security, you might want to find ways to lower your taxes if you, say, make more money.
If you are retired, it is also helpful to know how much money you can make in the new year before your Social Security benefits change.
