The Social Security Administration (SSA) recently announced an increase in the wage base subject to Social Security tax for 2025. Starting Jan. 1, 2025, the maximum taxable earnings for Social Security will rise from $168,600 in 2024 to $176,100, which is an increase of $7,500. This adjustment reflects the cost-of-living increase tied to inflation and the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). 

Background 

When the Social Security payroll tax was introduced in 1937, the wage base was set at $3,000, a figure that remained unchanged until 1950. As the U.S. economy expanded and wages increased, adjustments were necessary to maintain sufficient revenue for the Social Security system. By 1980, the wage base had grown to $25,900, rising to $76,200 by 2000 and reaching $137,700 by 2020. These changes were driven primarily by inflation and wage growth. 

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees and self-employed workers: one for Old Age, Survivors and Disability Insurance (Social Security tax) and the other for Hospital Insurance (Medicare tax). While Social Security tax applies only to earnings up to a set maximum amount, Medicare tax has no maximum earnings limit. For 2025, the FICA tax rate for employers remains unchanged at 7.65%, comprising 6.2% for Social Security and 1.45% for Medicare. 

2025 Updates  

Below are the key details related to the change: 

Tax Implications: The following tax percentages apply to 2025 wages: 

• 6.2% Social Security tax on the first $176,100 of wages (6.2% × $176,100 makes the maximum tax $10,918.20) 
• 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns, $125,000 for married taxpayers filing separate returns) 

Medicare Taxes: The wage base increase does not impact Medicare taxes, which remain at 1.45% on all earnings, with an additional 0.9% applied to high earners (income above $200,000 for individuals and $250,000 for couples). 

Eligibility Requirements: The amount required to earn one quarter of Social Security coverage in 2025 will rise to $1,810, up from $1,730 in 2024.

This change ensures Social Security contributions and benefits keep pace with economic shifts, helping to sustain the program's solvency and relevance for future beneficiaries. Employers and payroll teams should prepare to adjust withholding systems accordingly. 

Keeping up with changes to payroll taxes, wage bases and compliance requirements is essential for businesses to remain compliant and avoid costly errors. Our payroll pros are here to help you navigate these complexities with confidence. Our comprehensive solutions ensure accuracy, efficiency and peace of mind, so you can focus on what matters most—growing your business.