February 03, 2025
Social Security is undergoing a transformation in 2025, bringing a series of updates that reflect the program’s need to adapt to modern economic and demographic realities. From inflation-driven adjustments to benefits and wage base limits to changes in retirement age and Social Security credit earnings, these shifts are designed to ensure the program's sustainability and effectiveness for future generations. For employers, these updates present both challenges and opportunities—requiring careful attention to payroll compliance, benefits administration, and employee communication.
In 2025, Social Security will see a modest 2.5% Cost-of-Living Adjustment (COLA) thanks to cooling inflation. This increase will boost benefits for retirees and other beneficiaries. According to the Social Security Administration, the average retirement benefit is estimated to grow by $48 per month. For employers, this means potential increases in payroll tax contributions and adjustments to benefits planning. Payroll systems must be updated to reflect these revised amounts, ensuring employees’ deductions are accurate.
Full Retirement Age (FRA) is the age at which individuals become eligible to receive 100% of their Social Security retirement benefits. FRA has been increasing by two months over the last few years and varies based on birth year. For example, individuals born in 1959 will reach their FRA at 66 years and 10 months in 2025, while those born in 1960 or later will reach their FRA at age 67.
While the minimum age for collecting Social Security benefits remains 62, doing so permanently reduces monthly payments—up to 30% less than the full benefit amount, depending on how early benefits are claimed. On the other hand, delaying benefit payments beyond FRA can increase monthly benefits. For every year payments are delayed until age 70, beneficiaries can receive an 8% increase in their monthly amount, maximizing their retirement income.
Social Security funding relies on payroll taxes collected under the Federal Insurance Contributions Act (FICA). In 2025, the Social Security tax rate remains steady at 12.4% of gross earnings, split evenly between employers and employees. Each party contributes 6.2%, while self-employed individuals shoulder the full 12.4%, reflecting their dual role as both employer and employee.
Through Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) program, the amount of earnings subject to taxation in a given year is limited. The taxable wage base—the maximum earnings subject to Social Security tax—has increased from $168,600 in 2024 to $176,100 in 2025. Earnings exceeding this threshold are not subject to Social Security tax, a relief for high earners but a consideration for those managing payrolls.
In 2025, Medicare premiums and deductibles will increase, which could affect retirees’ budgets. Medicare Part B covers doctor visits and outpatient services, and the standard monthly premium will rise by $10.30—from $174.70 to $185. Also, the annual Part B deductible will increase from $240 to $257.
The impact will be even greater for beneficiaries with higher incomes. According to the Centers for Medicare & Medicaid Services (CMS), individuals with annual incomes over $106,000 will face higher income-related premiums, with amounts determined by their specific income bracket. Medicare Part A covers hospital care and will also see adjustments, with the deductible per benefit period rising from $1,632 to $1,676.
Social Security credits are the foundation for qualifying for Social Security retirement benefits. To earn these credits, you must work and pay Social Security taxes, with credits accumulating based on your annual earnings.
In 2025, the earnings required to earn one credit will increase to $1,810, up from $1,730 in 2024. Workers can earn up to four credits per year, meaning you’ll need at least $7,240 in annual earnings to secure the maximum credits for the year.
Most individuals need 40 credits—the equivalent of 10 years of work—to qualify for Social Security retirement benefits. These credits don’t expire, so even if an individual’s work history has gaps, the credits earned remain valid toward eligibility.
Keeping up with evolving regulations like Social Security updates doesn’t have to be a burden. With TruPay’s human capital management (HCM) solutions, you can stay compliant effortlessly. Our Payroll Software module within our innovative InspireHCM platform automates payroll processing, calculates deductions accurately, and updates in real-time to reflect the latest regulatory changes—no manual adjustments required.
Whether your organization operates in healthcare, higher education, manufacturing, or finance, TruPay’s tools are tailored to simplify your payroll and human resource operations. From tax compliance to employee self-service portals, we help streamline processes and reduce errors, freeing up time for you to focus on strategic initiatives.
Why leave compliance to chance? Request a live demo today and see how TruPay can transform your payroll and HCM operations!