Here’s the 1 Social Security change in 2025 that’s going to hurt the worst

A new year always heralds change. 2025 will be no different. Some of these changes should come as no surprise. For example, the Social Security Administration (SSA) has already revealed changes to Social Security coming next year.

Some of these changes are good. Others are not so good. Here’s the one Social Security change in 2025 that’s going to hurt the most.

For many people, paying taxes is a necessary evil. The new year will bring greater evil for some. In 2025, FICA taxes will increase for higher incomes as a result of an important social security change.

To be clear, the FICA tax rate does not change. It will still be 15.3%, divided equally between employees and employers. Of this amount, 12.4% (6.2% each for employees and employers) goes to finance social security.

However, the amount of income that is subject to the Social Security portion of the FICA tax will change next year. The maximum taxable earnings is currently $168,600, but will increase to $176,100 in 2025. There is no limit on the amount of earnings on which FICA taxes used to fund Medicare must be paid.

Some Americans who begin receiving Social Security benefits before their full retirement age (FRA) but continued work could also be adversely affected by a change in 2025. Currently, Social Security will withhold $1 in benefits for every $2 in earnings above $22,320 for those below their FRA. This limit will increase to $23,400 in the new year. Social Security also currently withholds $1 in benefits for every $3 in earnings above $59,520 during the year a person reaches their FRA. This threshold will increase to $62,160 in 2025.

Ironically, the most painful Social Security change in 2025 will be one meant to help people. All Social Security recipients will receive a 2.5% cost of living adjustment (COLA) starting in January. The purpose of COLA is to protect Social Security benefits from being eroded by inflation. However, for many (and perhaps even most) individuals, the 2.5% increase will not achieve this goal.

The 2025 COLA will be the lowest increase since 2020. In one sense, this is good news. A lower COLA means lower inflation, since the adjustment is based on an inflation measure – the Consumer Price Index for Urban Wage and Office Workers (CPI-W).

However, there is a well-known flaw with the CPI-W: It does not accurately reflect the increased costs incurred by seniors. Retirees could especially feel the sting of the low COLA next year. In particular, medical costs tend to rise faster than overall inflation. We saw this in the latest inflation report for November, where the cost of medical services rose 3.8% year over year, while the CPI-W rose 2.4%.

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