Social Security plays a vital role in supporting millions of retirees, people with disabilities, and surviving spouses. In 2025, the Social Security tax limit has increased to $176,100, up from $168,600 in 2024. This change affects how much income is subject to Social Security taxes and helps fund essential programs like the Cost of Living Adjustment (COLA).
The maximum Social Security tax a worker will pay through payroll withholding in 2025 is $10,918.20, which is 6.2% of $176,100. Self-employed individuals are responsible for both the employer and employee portions of the tax, totaling 12.4%. In contrast, employed individuals only pay half (6.2%) of the total tax amount, with their employers covering the other half.
Social Security tax limits are adjusted annually based on the rise in the National Average Wage Index (NAWI).
Social Security tax increase explained
These adjustments help maintain the alignment of Social Security payouts with inflation.
The 6.2% Social Security payroll tax is not applied to any income exceeding the wage ceiling. For example, an employee earning $180,000 in 2025 will only be taxed on $176,100 of their income, resulting in a Social Security tax payment of $10,918.20. Certain groups of people might be exempt from paying Social Security taxes under specific circumstances.
These exemptions include members of certain religious groups that publicly oppose Social Security benefits, nonresident immigrants (depending on their visa type), students working at their university, and individuals employed by a foreign government. Understanding these changes is essential for taxpayers as they plan their finances for the coming years. It is important to note that while some argue that taxing Social Security benefits is unfair, the program depends on this revenue to fulfill its financial obligations.
Lawmakers may need to focus on adjusting the combined income thresholds rather than eliminating taxes on Social Security benefits altogether to maintain the program’s financial health.
Photo by; Ravi Patel on Unsplash