Social Security benefits are currently the primary or even only source of income for millions of seniors, who rely on them every month. But in recent years, increased inflationary pressures have reduced purchasing power, making life harder for individuals who depend entirely on these benefits. Fortunately, prices are starting to decline and the Federal Reserve is even thinking about lowering interest rates. This means that inflation has started to slow down.
Social Security benefits will get a COLA in 2025
To maintain the purchasing power of benefits, Social Security payments are subject to an annual cost-of-living adjustment (COLA). The COLA applied to benefits in any given year is determined by how a subset of the Consumer Price Index (CPI) rises in the third quarter of the preceding year, which is the three-month period from July to September. To that end, the Social Security Administration will not be able to decide the official 2025 COLA until September’s CPI data is published in mid-October.
Social Security taxes will increase for some workers
Another prevalent misperception is that 74% of respondents polled believe that workers pay Social Security taxes on their whole income. There is a limit on the amount of wages subject to the Social Security payroll tax. For 2024, this maximum is set at $168,600, which means that any income above this level is exempt from Social Security taxes. The maximum taxable earnings limit is changed periodically to reflect changes in the national average pay index.
Taxable Earnings Rose
Employees paid the 6.2% Social Security tax, which their employer matched, on incomes up to $160,200 in 2023. In 2024, the maximum taxed earnings will rise to $168,600. The Social Security tax rate continues at 6.2%, with the self-employed paying 12.4%.
Higher Credit Earning Threshold
To be eligible for Social Security benefits, people born in 1929 or later must have earned at least 40 credits (a maximum of four per year) during their working lives. The quantity required to obtain a single credit increases year after year. 9In 2024, it will require $1,730 in earnings per credit.
