October is a busy month for Social Security because it is when big changes that will happen next year are made public.
The cost-of-living adjustment (COLA) is one of the most-anticipated numbers. It raises benefits based on the amount of inflation over the past year, though many would say it is not enough.
The Social Security COLA gets a lot of attention, which is fair since it has a direct effect on the monthly income of retirees. But besides the COLA, Social Security also gave out other important numbers in October.
It was also announced that the new pay base limit for 2025 is $176,100. People pay a lot more attention to the COLA than to the wage base limit, but it is still important to think about the wage base limit and how it might affect your taxes.
What should beneficiaries be aware of regarding the earnings limit?
People who work in the United States pay payroll taxes for Social Security their whole lives. The current tax rate is 12.4%, which is split in half between employers and employees at a rate of 6.2% each.
People who are self-employed, on the other hand, pay the full 12.4%. Social Security only gives you a certain amount of your salary, which is good news. The base pay level is this.
Any income above the wage base level does not have to be taxed for Social Security. So, in 2025, any income over $176,100 will not be taxed.
In 2025, a person making $176,101 and a person making $1 million will both pay the same amount of Social Security payroll taxes.
Paychecks that are higher than the wage base limit are not taxed, so they are not used to figure out your monthly Social Security payment.
How is the earnings base threshold determined?
Social Security uses the national average wage index (NAWI) to figure out the annual wage base limit. The NAWI shows the average yearly wage for workers who are covered by Social Security.
We compare the NAWI from the most recent year to the previous year to decide if the rate will go up. If the number of NAWIs goes up, the pay base limit will go up by the same amount.
The base pay limit will not go down, but it will stay the same if the number goes down or stays the same.
Such as, the NAWI in 2022 was 63,795.13. It will be 66,621.80 in 2023.
The floor for pay went up by 4.43 percent, from $168,600 in 2024 to $176,100 (rounded to the nearest hundred). In order to figure out how much (if any) the wage base limit will go up in 2026, the NAWI for 2024 will be compared to that for 2023. Take a look at the last 10 NAWIs:
Year | National Average Wage Index |
2023 | 66,621.80 |
2022 | 63,795.13 |
2021 | 60,575.07 |
2020 | 55,628.60 |
2019 | 54,099.99 |
2018 | 52,145.80 |
2017 | 50,321.89 |
2016 | 48,642.15 |
2015 | 48,098.63 |
2014 | 46,481.52 |
How does the 2025 earnings limit compare to previous years?
Not only does knowing the old salary base limits help with taxes, but it also tells you if you will be able to get the maximum Social Security benefit when you submit your claim.
To get the most money each month from Social Security, you must have earned at least the base amount in each of the 35 years they use to figure out your benefit.
You will not be able to reach the maximum if your income is less than the wage base limit in any of those. Here are the ten previous wage base limits as a guide:
Year | Wage Base Limit |
2024 | $168,600 |
2023 | $160,200 |
2022 | $147,000 |
2021 | $142,800 |
2020 | $137,700 |
2019 | $132,900 |
2018 | $128,400 |
2017 | $127,200 |
2016 | $118,500 |
2015 | $118,500 |
If you have made at least the wage base limit in the 35 years that were used to figure out your eligibility, you should wait to claim benefits until you turn 70, which is the last age at which they go up.
Most people will not be able to get the full benefit, but if that is what you want, keep an eye on the wage base limit every year.
Also see:-Social Security Prepares New Changes for November – Will Affect Retirees’ Paychecks
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