In 2025, millions of retired Americans will see a 2.5% change in Social Security benefits. This change, which is expected to reflect the cost of living, is not the only development that will affect workers in the coming year. The Social Security Administration (SSA) has announced a major change to the threshold for income subject to payroll taxes. This change will affect those with higher incomes, who will have to pay more taxes.
On October 10, the Social Security Administration (SSA) revealed that The “maximum taxable” income for 2025 will be set at $176,100.. This represents a 4.4% increase from the 2024 limit of $168,600.
Income above this threshold will not be subject to Social Security taxes.but they will still be taxed for Medicare. This means that employees with an income above this figure will see an increase in the taxes they have to pay.
“There’s very little you can do to avoid it,” says certified financial planner Sean Lovison, founder of Purpose Built Financial Services in the Philadelphia area.
Social Security payroll tax is calculated at 12.4%, and employees contribute 6.2% through payroll deductions. Employers match this contribution. By 2025, workers will pay 6.2% on the first $176,100, a translating to a maximum of $10,918.20 in annual contributions. Once this level is reached, they will not have to contribute to the program for the rest of the year.
Freelancers will have an even bigger impact. They are responsible for paying the full 12.4%, as they have to cover both parts of the tax. This means that they must pay close attention to how their income affects their tax burden.
In addition, the US government collects 2.9% in taxes for Medicare, with no limit on taxable earnings. For independent workers, This adds up to a total burden of 15.3% between Social Security and Medicare taxes.although they can reclaim 50% of their self-employment tax on their return.
Concerns about the solvency of Social Security are increasing. Trust funds supporting benefits are expected to decline by 2035. This has led some advocates to propose an increase in the Social Security wage base to generate more income.
In the 2024 report, Social Security administrators presented more than 150 options to address the funding gap, including benefit cuts and revenue increases.
“Clearly, the biggest financial benefit comes from eliminating the top tax rate,” Alicia Munnell, director of the Center for Retirement Research at Boston College, wrote of the August report.
This could be a solution to improve the financial situation of the program. But, Future changes remain uncertain due to a lack of clear control by Congress and the White House.
It is essential that employees are informed about the upcoming changes to Social Security taxes, especially those who in previous years had not paid this tax before.
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2024-10-12 19:28:00
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