2 Big Social Security Changes in 2025 May 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 instance, Social Security benefits will get a cost-of-living increase in 2025, and some workers will pay more taxes into the program. However, a 2024 survey from Nationwide Retirement Institute suggests both changes could take most Americans by surprise.

Read on to learn more.

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

According to Nationwide Retirement Institute, 66% of surveyed adults incorrectly agreed with this statement: "Social Security is not protected against inflation." That misconception is somewhat surprising, given the state of the economy. According to pollster Gallup, American households have listed inflation as their largest financial problem for the last three years.

Fortunately, Social Security benefits are indeed protected from inflation. Recipients get annual cost-of-living adjustments (COLAs) that keep their benefit income aligned with rising prices. Without those regular pay bumps, Social Security benefits would quickly lose buying power. For instance, what $500 could purchase in June 2014 would cost about $659 today, according to the Labor Department.

Social Security's official 2025 COLA cannot be calculated until mid-October, but The Senior Citizens League estimates benefits will increase by 2.6% next year. That estimate aligns with the COLA forecasted by the Social Security Board of Trustees. It would be the smallest raise for retired workers since 2021 and fall below the 10-year average of 2.75%.

The chart below shows how a hypothetical 2.6% COLA would impact the average payout 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 by mail in December detailing their updated benefit amount for 2025. Alternatively, beneficiaries can also find that information online in the Message Center of their my Social Security account.

Some workers will pay more taxes into the Social Security program in 2025

According to Nationwide Retirement Institute, 74% of surveyed adults incorrectly agreed with the following statement: "Workers pay Social Security taxes on all of their income." That misconception is understandable. Social Security is mostly funded through a dedicated payroll tax, and common sense says the payroll tax should apply evenly to all income. But the system does not work like that.

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

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

Data source: The 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, the trustees estimate 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 rate of 6.2%, those workers could pay up to $390.60 more in Social Security taxes in 2025.

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