In 2025, individual taxable earnings up to $176,100 will be subject to Social Security tax, according to an announcement by the Social Security Administration (SSA) on Thursday. This marks an increase from the 2024 wage base limit of $168,600, which applies to earnings subject to the 6.2% Old Age, Survivors, and Disability Insurance (OASDI) tax. At or above this wage base limit, both the employee and employer will each contribute $10,918.20 in OASDI taxes, reflecting a $465 increase for both parties in 2025.

The Medicare hospital insurance tax rate remains unchanged at 1.45% for both employees and employers, with no wage limit. However, individuals earning more than $200,000 annually ($250,000 for married couples filing jointly and $125,000 for married taxpayers filing separately) are subject to an additional hospital insurance tax of 0.9%, as stipulated under Section 3103(b)(2), which also remains unchanged for 2025.

Self-employed individuals are required to pay a self-employment tax equivalent to the combined OASDI and Medicare taxes for both employees and employers. This includes 12.4% of net self-employment income up to the OASDI wage base, plus 2.9% in Medicare taxes on all net self-employment income. These individuals can also take an above-the-line income tax deduction equal to half of their self-employment tax, which remains unchanged.

Cost-of-Living Adjustments (COLA)

The SSA also announced a 2.5% cost-of-living adjustment (COLA) for Social Security and Supplemental Security Income (SSI) benefits, effective January 2025. This adjustment follows a 3.2% increase last year and an 8.7% increase two years ago, both based on changes in the consumer price index.

In 2025, Social Security recipients who reach full retirement age will be able to earn up to $62,160 annually before their benefits are reduced by $1 for every $3 earned above this limit, up from $59,520 in 2024. Beneficiaries younger than full retirement age can earn up to $23,400 in 2025 before their benefits are reduced by $1 for every $2 in excess earnings, an increase from $22,320 in 2024.

The maximum Social Security benefit for workers retiring at full retirement age will increase to $4,018 per month in 2025, up from $3,822 in 2024.