Changes in Social Security Taxes: Find more Updates

Changes in Social Security Taxes – In April 2024, more than 50 million retired people received Social Security benefits, with many dependent on them as their primary source of income. A Gallup poll found that 88% of seniors rely on Social Security, with 60% calling it a “major source” of income. Given the importance of the program, beneficiaries and future users must be informed of any changes. However, a Nationwide Retirement Institute survey found that Americans generally misunderstood Social Security fundamentals.

Changes in Social Security Taxes

COLA In 2025 (Changes in Social Security Taxes)

The Nationwide Retirement Institute discovered that 70% of adults incorrectly believe that “Social Security is not protected against inflation.” This is untrue; social security benefits include an annual cost-of-living adjustment to maintain purchasing power. The COLA is decided by changes in a specific segment of the Consumer Price Index during the previous year’s third quarter, from July to September. The Social Security Administration (SSA) can only confirm the 2025 COLA once the September CPI data is released in mid-October. Based on current inflation rates, the Senior Citizen League, a nonprofit senior advocacy organization, forecasts a 2.7% increase in benefits by 2025. Given the recent higher-than-expected inflation, the 2025 COLA may exceed this projection.

Increased Social Security Taxes

According to a nationwide survey, 74% of Americans incorrectly believe “workers pay Social Security taxes on all of their income.” The income due to Social Security payroll tax is currently capped at $168,600 in 2024. Social Security does not tax earnings beyond this limit. This cap is changed annually based on the national average pay index. Although the official 2025 maximum will be revealed in mid-October, the Social Security Board of Trustees expects it to increase to $174,900. This implies that employees earning more than this threshold will pay up to $391 extra in Social Security taxes next year. The tax rate is 6.2%. Thus, an employee earning over $174,900 will have $10,844 withheld.

Benefit Withheld:

According to a nationwide poll, 46% of respondents wrongly disagree with the statement: “Some benefits may be withheld if you’re still working before your full retirement age.” This assertion is correct. Beneficiaries under full retirement age and earning more than specific thresholds, known as retirement earnings test exempt amounts, may have some of their benefits temporarily withheld.

In 2024, beneficiaries under full retirement age will have $1 deducted for every $2 earned above the lower limit of $22,320. Those who reach full retirement age this year will have $1 withheld for every $3 earned beyond the upper limit of $59,520. The official retirement earnings test exemption numbers for 2025 will be released mid-October after revisions in the national average pay index. The Social Security Board of Trustees anticipates that the lower limit will be $23,280, while the top limit will be $61,800. This implies that beneficiaries under the full retirement age can earn more money before their benefits are withheld next year. These limitations are lifted once a recipient reaches full retirement age. Furthermore, any payments withheld before attaining full retirement age will be factored into the benefits to which retirees are entitled, ensuring that they recoup most of all withheld monies throughout their lifetime.

Wrapping It Up

Staying current on Social Security reforms is critical for millions of seniors who rely on these benefits. The 2025 adjustments, which include a COLA increase, a higher taxable earnings cap, and changes in benefit withholding thresholds, will impact many retirees. Knowing these developments is critical for good retirement planning and financial security.

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