As we approach 2025, there are significant changes to the Social Security wage base and benefits that you need to be aware of. Rest assured, all Journey clients will automatically be compliant with these updates, but understanding these changes is crucial as they can impact your employees’ take-home pay.
What You Need to Know About the Wage Base Increase
Starting January 1, 2025, the maximum earnings subject to Social Security payroll tax will increase to $176,100, up from $168,600 in 2024. This adjustment reflects the annual cost-of-living increase and is calculated based on the national average wage index.
Breakdown of Payroll Tax Changes
For 2025, employers will need to withhold the following amounts:
- Social Security Tax: 6.2% on the first $176,100 of employee wages, resulting in a maximum tax of $10,918.20 (up from $10,453.20 in 2024).
- Medicare Tax: 1.45% on ALL employee wages (no change from 2024).
FICA Rates
The Federal Insurance Contributions Act (FICA) tax, which combines Social Security and Medicare taxes, will maintain the same rates for 2025:
- Employee Rate: 7.65% (6.2% + 1.45%)
- Employer Rate: 7.65% (6.2% + 1.45%)
- Self-Employed Rate: 15.3% (12.4% + 2.9%)
For highly compensated employees, an additional 0.9% Medicare tax applies on earnings above certain thresholds, which remain unchanged from 2024.
Changes to Social Security Benefits for Retirees
In addition to the wage base increase, retirees will see a 2.5% increase in their Social Security and Supplemental Security Income benefits starting January 1, 2025.
Key Benefit Figures for 2025
- Maximum Social Security Benefit: $4,018 (up from $3,822)
- Maximum Federal SSI Monthly Payment: $967 (up from $943)
- Earnings Required for a Quarter of Coverage: $1,810 (up from $1,730)
What This Means for Employees Working While Collecting Benefits
For employees who choose to work while collecting Social Security benefits, there are specific thresholds to keep in mind. For 2025:
- Beneficiaries under full retirement age will have $1 in benefits withheld for every $2 earned above $23,400 (up from $22,320 in 2024).
- Those reaching retirement age in 2025 will have $1 in benefits withheld for every $3 earned above $62,160 (up from $59,520) until they reach full retirement age.
Preparing for the Changes
As an employer, it’s essential to prepare for these changes:
- Modify Payroll Systems: Ensure your payroll systems are updated to reflect the new taxable wage base of $176,100. Again, if you’re a Journey Payroll & HR client, this is automatically taken care of for you.
- Notify Employees: Inform employees whose earnings exceed the 2024 cap that they may see a slight decrease in their net take-home pay due to the increased withholding.
By staying informed and proactive, you can help your employees navigate these changes smoothly.
If you have any questions, please don’t hesitate to reach out to us at Journey Payroll & HR. We’re here to support you and ensure your processes remain seamless and compliant!