Two Big Changes to Social Security in 2025 Could Surprise Most Americans

Social Security is an important source of income for millions of retirees. Yet Americans consistently score poorly when asked about their knowledge of the Social Security program.

For example, Social Security benefits will increase in line with the cost of living in 2025, and some workers will pay more in taxes under the program. However, a 2024 survey by the Nationwide Retirement Institute suggests that both of these changes could come as a surprise to most Americans.

Read on to find out more.

Social Security benefits to be adjusted for cost of living (COLA) in 2025

According to the Nationwide Retirement Institute, 66% of adults surveyed incorrectly said that “Social Security is not protected against inflation.” This misconception is somewhat surprising, given the state of the economy. According to the Gallup polling organization, American households have cited inflation as their biggest financial problem over the past three years.

Fortunately, Social Security benefits are effectively protected against inflation. Beneficiaries receive an annual cost-of-living adjustment that keeps their income in line with rising prices. Without these regular wage increases, Social Security benefits would quickly lose their purchasing power. For example, what $500 could buy in June 2014 would cost about $659 today, according to the Department of Labor.

Social Security’s official COLA for 2025 won’t be calculated until mid-October, but the Senior Citizens League estimates that benefits will increase by 2.6% next year. That estimate is in line with the Social Security Board’s projected COLA. It would be the smallest increase for retired workers since 2021 and 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 beneficiaries should receive a COLA notice in the mail in December detailing their updated benefit amount for 2025. Beneficiaries can also find this information online in their provider’s message center. my social security account.

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

According to the Nationwide Retirement Institute, 74% of adults surveyed incorrectly said that “workers pay Social Security taxes on all of their income.” This misconception is understandable. Social Security is primarily funded by a payroll tax, and common sense dictates that this tax should apply equally to all income. But the system doesn’t work that way.

Current law limits the income subject to Social Security payroll tax, meaning that some workers not Workers who pay Social Security taxes on all of their income are subject to a lower tax rate. Many experts and policymakers see this as a problem, and several have proposed changes, since workers whose income is above the cap are effectively taxed at a lower rate.

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

Data source: Social Security Administration.

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