2 big Social Security changes in 2025 could surprise most Americans

Social Security is an important source of income for millions of retired workers. Yet Americans consistently score poorly when quizzed on their knowledge of the Social Security program.

For example, Social Security benefits will increase in the cost of living in 2025, and some workers will pay more taxes into the program. However, a 2024 survey from the Nationwide Retirement Institute suggests that both changes could take most Americans by surprise.

Read on to learn more.

Image source: Getty Images.

Social Security benefits will receive a cost-of-living adjustment (COLA) in 2025

According to the Nationwide Pension Institute, 66 percent of adults surveyed disagreed with the statement: “Social Security is not inflation-proofed.” This misconception is somewhat surprising given the state of the economy. According to the Gallup poll, American households have listed inflation as their biggest financial problem for the past three years.

Fortunately, Social Security benefits are indeed inflation-protected. Beneficiaries receive annual cost-of-living adjustments (COLAs) that keep their benefit income in line with price increases. Without these regular wage increases, Social Security benefits would quickly lose purchasing power. For example, what $500 could buy in June 2014 would cost about $659 today, according to the Labor Department.

Social Security’s official 2025 COLA can’t be calculated until mid-October, but the Senior Citizens League estimates benefits will increase 2.6 percent next year. This estimate aligns with the Social Security Administration’s projected COLA. It would be the smallest increase for retired workers since 2021 and fall below the 10-year average of 2.75 percent.

The chart below shows how a hypothetical 2.6% COLA would impact average pay for different beneficiaries.

Data source: Social Security Administration. Note: Benefit amounts have been rounded to the nearest dollar.

Social Security recipients should receive a COLA notice in the mail in December detailing their updated benefit amount for 2025. Alternatively, recipients can find this information online in their Message Center. my social security account.

Some workers will pay more in Social Security taxes in 2025

According to the Nationwide Retirement Institute, 74 percent of adults polled incorrectly agreed with the following statement: “Retirees pay Social Security taxes on all their income.” That misconception is understandable. Social Security is largely funded by a dedicated payroll tax, and common sense says that the payroll tax should apply equally to all income. But the system doesn’t work like that.

Current law limits income subject to Social Security payroll tax, meaning some workers not they pay social security tax on all their income. Many policy experts and politicians see this as a problem, and several have proposed changes because workers with incomes above the cap are effectively taxed at a lower rate.

In any case, the maximum taxable earnings limit is adjusted each year to take account of changes in general wage levels. The cap is $168,600 in 2024. That means workers will owe Social Security tax on all earnings up to that amount — usually at a rate of 6.2 percent, though the self-employed pay 12.4 percent — – but any income over $168,600 is currently tax-free.

Data source: Social Security Administration.

The updated taxable maximum for 2025 will be announced in mid-October when the Social Security Administration announces the 2025 COLA. However, administrators estimate that the taxable maximum will be $174,900 next year. That means some workers will owe Social Security tax on an additional $6,300 in income. Assuming a 6.2 percent rate, those workers could pay up to $390.60 more in Social Security taxes in 2025.