04 Nov 2025 OASDI tax and earnings base increases to $176,100; COLA is 2.5%
Social Security beneficiaries will see an increase in their monthly checks in 2025—2.5%. This cost-of-living adjustment, or COLA, will produce an estimated average monthly benefit of $1,976 for all retired workers in 2025, $49 a month more than in 2024. The COLA increase will be applied to this coming year’s benefits, beginning with benefits for December 2024, which are payable in January 2025.
The amount of earnings subject to taxation under FICA and SECA, the “wage base,” is also going up in 2025. The 2025 wage base of $176,100 is $7,500 higher than the 2024 amount of $168,600.
The benefit and wage base increases for 2025 were announced October 10 by the Social Security Administration in a press release.
Tax increase appears in FICA tax deducted from paychecks. The tax increase will show up in the FICA tax deducted from the paychecks of those individuals earning up to the 2025 wage base amount of $176,100. Although the tax rate for the Old-Age, Survivors and Disability Insurance (OASDI) portion of the tax under the FICA has held steady at 6.2% since 1990, the amount of wages subject to the tax increases each year based on increases in the national average wage.
The $176,100 earnings base for 2025, which applies only to the 6.2% OASDI portion of the Social Security tax, could result in a FICA tax increase of as much as $465.00 for employees (and their employers) whose earnings exceed the 2024 tax and earnings base of $168,600. Self-employed individuals may owe as much as $930.00 in additional self-employment (SECA) tax in 2025 since they also must pay the “employer” portion of the taxes. However, they can recoup some of this amount through a deduction on their federal income tax return. There is no limit on the amount of earnings subject to the 1.45% Medicare (hospital insurance) portion of the tax.
No change in tax rates. The employee/employer Social Security tax rate remains at 7.65% for 2025, including 6.2% for the OASDI portion and 1.45% for the hospital insurance portion. For the self-employed, the rate continues to be 15.3%. Note that self-employed persons calculate their net earnings as gross earnings reduced by 7.65%, and they deduct half of their Social Security taxes from their net earnings for federal income tax purposes.
Change in CPI-W drives amount of increase. The cost-of-living increase of 2.5% will begin with Social Security checks that are received in January 2025. (Increased payments to more than 7.5 million Supplemental Security Income beneficiaries, however, will begin on December 31, 2024.)
The 2.5% increase is based on the rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of 2023 through the third quarter of 2024. The CPI-W reflects cost increases for wage earners and thus excludes the impact of cost increases on higher income earning self-employed professionals and business owners.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 2.4% over the last 12 months to an index level of 315.301. The index for all items less food and energy rose 3.3%. The food index increased 2.3%, while the energy index decreased 6.8% over the past 12 months. The CPI-W increased 2.2% over the last 12 months to an index level of 309.046.
Retired worker’s average monthly benefit becomes $1,976. For Social Security beneficiaries, the average monthly benefit (prior to deduction for the Part B Medicare premium) for all retired workers will rise to $1,976 in 2025 up from the average benefit of $1,927 paid one year earlier. The maximum Supplemental Security Income (SSI) monthly benefit for an individual will rise to $967, up from $943, and the maximum SSI payment to a couple will rise to $1,450, up from $1,415.
Domestic employee and election worker coverage. For 2025, there is a $100 increase in the amount of wages a domestic worker may earn without being subject to FICA taxes. An employer may pay a domestic worker, such as a maid or a nanny, up to $2,800 in 2025 without having to wrestle with federal withholding on wages. The threshold for election workers increases to $2,400 in 2025, up from $2,300 in 2024.
Age 65 birthday celebrants in 2025 required to wait for full benefits. Workers who attain age 65 in 2025 will have to wait to retire if they wish to receive their full retirement benefit. A gradual rise in the full retirement age began in 2000 resulting from the 1983 amendments to the Social Security Act, which increased the full retirement age in two-month increments from age 65 to age 67. Individuals attaining full retirement age in 2025 will receive a maximum possible monthly benefit is $4,018. Full retirement age will remain at age 66 for individuals born January 2, 1943, through January 1, 1955.
Reduced benefits for early retirees. Workers may retire as early as age 62, but they will receive a reduced benefit if they do. The full retirement age for workers reaching age 62 in 2025 (67, for those individuals born in 1960 and later), is also based on the 1983 amendments. The practical effect of this change is to slightly decrease the amount of early retirement benefits payable to individuals who reach age 62 in 2025 by increasing the reduction amount in the benefit formulas by 5/12 of 1.0% of an individual’s primary insurance amount (PIA) for each additional month of retirement beyond 36 months. This process is explained more fully in the Unemployment Insurance Reports with Social Security “Social Security: Benefits Explained” division. PIAs are explained in the same division.
Increases for other beneficiaries. For an aged couple, both receiving benefits, the average monthly Social Security benefit becomes $3,089 (up from the average benefit of $3,014 paid when last year’s increase took effect in December 2023). For a widowed mother and two children, the average monthly benefit becomes $3,761 (up from $3,669). For an aged widow or widower living alone, the average monthly benefit becomes $1,832 (up from $1,788) and for a disabled worker with a spouse and one or more children, the average monthly benefit becomes $2,826 (up from $2,757). The average monthly benefit for all disabled workers becomes $1,580 (up from $1,542). All of these benefit amounts assume steady earnings since age 22 and no earnings prior to that point.
Benefit computation formula changes. The bend points used in the computations of the PIA for workers who first become eligible to receive a benefit in 2025, or who die in 2025 before becoming eligible, will be $1,226 and $7,391, respectively. The 2025 eligibility year PIA formula, which is based on the worker’s average indexed monthly earnings (AIME) throughout his or her career, thus will be 90% of the first $1,226 of AIME, plus 32% of AIME over $1,226 through $7,391, plus 15% of any AIME in excess of $7,391.
Maximum family benefit increases. The maximum family benefit in cases involving workers who first attain age 62, become disabled or die in 2025 will be computed as 150% of the first $1,567 of the worker’s PIA, plus 272% of the worker’s PIA over $1,567 through $2,262, plus 134% of the worker’s PIA over $2,262 through $2,950, plus 175% of the PIA in excess of $2,950.
Disability thresholds. The amount of monthly earnings in 2025 that will give rise to a presumption that a disability beneficiary is no longer disabled, that is, the amount that is deemed sufficient to demonstrate an ability to engage in “substantial gainful activity” is $1,620, an increase of $70 from 2024. A higher threshold of $2,700 will apply to blind beneficiaries in 2025. Disability beneficiaries may work for as many as nine months during any 60-month period without affecting their right to receive benefits. This is known as “trial work.” In 2025, a disabled beneficiary who works will not be treated as having engaged in trial work for any month in which his or her earnings are no more than $1,160, an increase of $50 over the 2024 limit.
Miscellaneous additional changes. The amount of earnings required for a quarter of Social Security coverage in 2025 increases to $1,810, up from $1,730 in 2024.
The national average wage index for 2023 (most recent available) is $66,621.80. The index is 4.43% higher than that of 2022.
The “old-law” contribution and benefit base increases from $125,100 in 2024 to $130,800 in 2025.
The fees for services performed by a representative payee will be $55 and $103 in 2025.
The SSI student exclusion is $9,460 per year in 2025.
Retirement test amounts rise. The amounts that Social Security beneficiaries can earn without having their retirement benefits reduced also will go up next year. Although the Senior Citizens’ Freedom to Work Act of 2000 eliminated the annual earnings test as of January 2000 for workers between full retirement age (age 67 for workers who attain age 65 in 2025) and age 69, workers under the full retirement age who are receiving benefits remain subject to the test and can earn up to $23,400 in 2025, or $1,950 per month, without having their benefits reduced. This is an inflation-adjusted increase of $1,080 over the 2024 annual limit. One dollar in benefits is withheld for every $2 in earnings above the limit.
Official notice to appear in Federal Register. The Social Security Administration’s official publication of the formula adjustments, cost-of-living increases, and tax and wage bases that will affect Social Security benefit computations in 2025, as well as its explanations of how the adjustments are calculated, will appear in the Federal Register shortly.
Original content by the Wolters Kluwer. This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.