A new year means new rules for retirement plans. Let’s start with one of the largest sources of income for millions of retirees: Social Security. What changes can we expect in 2025?

Heath Grossman, CFP® joins the Money Wisdom Question Series to break down the latest Social Security updates that could impact current and future beneficiaries.

Cost-of-Living Adjustment

Unlike most sources of retirement income, Social Security is periodically adjusted for inflation to help recipients keep pace with rising costs. In 2025, millions of Social Security beneficiaries will see an increase to their monthly benefit checks, thanks to a 2.5% cost-of-living adjustment (COLA). This year’s COLA is the smallest increase since 2020 – a welcome sign of moderating inflation.

Potential Tax Impact

If you’re still working and paying into Social Security via federal payroll taxes, you may notice a slight increase. Since FICA taxes are wage-based, it will depend on your earnings. While many people pay FICA taxes on their entire income, there is an annual limit for higher earners.

The maximum taxable earnings limit has increased from $168,600 in 2024 to $176,100 in 2025. This means, if you earn $100,000, you’ll pay FICA taxes on 100% of your income. However, if you make $200,000, you’ll only pay taxes on the first $176,100. As a result of this higher earnings cap, some individuals may end up paying a bit more in FICA taxes this year.

Higher Earnings Limit

Social Security benefits are also subject to an annual earnings limitation. If you’re under full retirement age and claiming Social Security while still receiving an income, some of your benefits may be reduced if your earnings exceed a certain threshold. More specifically, $1 will be deducted from your benefit for every $2 you earn above the annual limit. This threshold has slightly increased from $22,320 in 2024 to $23,400 in 2025. Of course, if you have reached full retirement age and are still working, there is no earnings limit, and no reduction to your benefits.