Three major changes that could affect your Social Security payments in January 2025
There are important changes that will be implemented in 2025 that could affect your Social Security payments for next year. Here’s what you need to know.
If you are a Social Security beneficiary or plan to claim your benefits soon, it is important to be aware of the changes that could have an effect on your payments next year.
Amounts received by beneficiaries are affected each year by a number of factors, including the cost-of-living adjustment (COLA), Medicare premiums, and maximum taxable earnings. All these can increase or decrease monthly benefits.
Here are the most important changes that will affect Social Security in 2025.
Cost of living adjustment
The Social Security Administration (SSA) calculates the cost-of-living adjustment (COLA) each year in October, and this percentage typically represents an increase in monthly payments for beneficiaries the following year. The COLA is calculated so benefits can keep up with inflation and so that the purchasing power of beneficiaries is not affected.
The adjustment is tied to the annual increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). SSA takes into account the CPI-W data from the third quarter of the previous year and compares it to the third quarter of the current year. If there has been an increase, SSA increases benefits commensurately.
According to the latest estimates, the COLA 2025 could be 2.63%. However, the official amount will not be announced until October.
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The maximum taxable profit will increase
To receive the maximum monthly payment, you must meet certain criteria. One of them is that you must pay Social Security payroll taxes on the maximum taxable income during your 35 highest-earning years.
Like the COLA, the taxable income limits change each year. This amount is tied to the national average wage rate, so it tends to increase annually.
In 2024, only the first $168,600 has been subject to these taxes. Although the maximum taxable income amount for 2025 has not been confirmed, an increase is expected, meaning that a larger portion of a worker’s income will be subject to tax.
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It will be harder to qualify for Social Security
To be eligible to claim Social Security benefits, you must meet several requirements, including accumulating 40 work credits over your lifetime, with a maximum of four credits per year.
To qualify for a credit, you need to report certain income. In 2024, a single work credit is equal to $1,730 in income. However, that threshold is likely to increase in 2025. The amount has not been confirmed either, but getting the number of work credits needed could be difficult for some.
However, those with full-time jobs, even at minimum wage, can generate the income necessary to guarantee the four labor credits they will need next year.