Personal Finance

These 3 Social Security Changes That Just Took Effect. How Many Did You Miss?

Maurie Backman

Published: February 11, 2025 8:30 am

You’re probably aware that Social Security has been around for a long time. But did you know that the program tends to undergo big changes each year?

It’s true. Social Security’s rules get an annual update to account for factors like inflation and wage growth. And here are three specific changes that went into effect this past January.

1. Benefits got a 2.5% cost-of-living adjustment

Each year, Social Security benefits are eligible for an automatic cost-of-living adjustment (COLA). Without COLAs, seniors on Social Security would be guaranteed to lose buying power from one year to the next. So automatic COLAs were approved by lawmakers decades ago to help Social Security recipients keep up with inflation. And making them automatic meant that lawmakers no longer have to actively vote in those raises.

In January, Social Security benefits rose 2.5%. And many seniors were unhappy with their 2.5% raise since it was the smallest one to arrive in years.

But it’s important to recognize that Social Security COLAs are calculated based on annual inflation. So if there’s a year when benefits don’t rise so much, it’s an indication that inflation wasn’t so rampant.

Because of the relationship between COLAs and inflation, Social Security recipients should basically break even — meaning, either get a smaller COLA when inflation isn’t so bad, or get a larger COLA when inflation is soaring. So all told, a 2.5% COLA isn’t such a terrible thing.

2. The earnings-test limit rose

You may not know what the Social Security earnings-test limit is unless you’re someone who works and collects benefits. Once you reach full retirement age (FRA), you can earn any wage without risking having a portion of your Social Security withheld.

But if you’re getting benefits before having reached FRA, that’s where the earnings-test limit comes in. And it dictates how much job-related income you’re allowed to bring home before you don’t get to collect your monthly Social Security check in full.

In 2024, the earning-test limit was $22,320, but it increased to $23,400 in 2025. Earnings beyond $23,400 this year result in $1 in Social Security withheld per $2 of income.

The earnings-test limit is higher, however, for seniors who reach FRA within the calendar years. In 2024, beneficiaries in that category had an earnings-test limit of $59,520, but this year, it’s up to $62,160. Beyond that, recipients risk having $1 in benefits withheld per $3 of income.

3. The wage cap increased

Social Security relies on payroll taxes for funding. But there’s a limit as to how much income is taxed each year for Social Security purposes.

In 2024, the wage cap was $168,600. But this year, it’s up to $176,100, which means higher earners will have to pay up.

That might seem like a bad thing. But if you’re someone who earns enough to be impacted by this change, know that some lawmakers have proposed doing away with the wage cap altogether. So when you think about it in that context, having to pay Social Security taxes on an extra $7,500 of earnings isn’t the worst thing that could happen.

If you earn $500,000 a year, for example, an absent wage cap would make your financial situation a whole lot worse. And also, if you earn enough to be impacted by wage cap changes, it’s easy to make the argument that you can afford to pay more into the program.