There are few social programs more important to Americans than Social Security. After decades of paying federal wage taxes, U.S. retirees will enjoy a guaranteed income stream through their golden years — one that a majority of them rely on to stay financially afloat.
Although many people gripe about paying those taxes, they’re a necessity to keep that program flowing. Unfortunately, the amount some people will pay in Social Security payroll taxes on their wage income could increase in 2025 because of one of the program’s annual changes.
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How payroll taxes work
There is a standard Social Security payroll tax on income collected under the Federal Insurance Contributions Act (FICA). If you have an employer and receive a W-2, you and your employer split that 12.4% tax evenly — each of you pays 6.2% of your wages. For example, if you make $100,000 annually, you’ll see $6,200 in Social Security payroll taxes deducted from your checks throughout the year, while your employer will pay the government another $6,200. If you’re self-employed (working as a contractor, freelancer, sole proprietor, etc.), you’re responsible for paying the full 12.4%. (You gotta love entrepreneurship.)
Social Security payroll taxes go directly toward providing benefits to people currently receiving Social Security. This creates a cycle where today’s workers fund today’s retirees, anticipating that they’ll be on the receiving end of the bargain when they retire.
Why will Social Security payroll taxes go up for some people in 2025?
Each year, most Americans’ wage and salary income is subject to Social Security payroll taxes, but only up to a certain amount: the wage base limit.
Any earned income you make above the wage base limit is free from Social Security payroll taxes. The government generally increases the wage base limit each year in step with the growth of the average U.S. wage.
In 2024, the wage base limit is $168,600. This means any wages a person earns above that amount are not subject to Social Security tax. In 2025, the wage base limit will be $176,100.
For people who earned between $168,600 and $176,100 in 2024 and will continue to earn that amount in 2025, this new wage base limit means that more of their income will be subject to Social Security taxes.
For example, if someone earned $175,000 in 2024, $6,400 of their earned income would have been exempt from the Social Security payroll tax — sparing them almost $400 in taxes. However, if they earn the same amount in 2025, their entire income will be subject to payroll taxes.Â
Who is exempt from paying Social Security payroll taxes?
While most workers must pay Social Security payroll taxes, there are some exceptions:
- Student workers: Students who attend school full-time, with the work being contingent on the student staying eligible and enrolled, are exempt. This exemption only applies to wages being paid by the educational institution where they are enrolled — i.e., to people doing work-study jobs. It does not apply to jobs a student performs for an off-campus employer.
- Certain religious groups: Members of certain religious groups, such as the Amish and Mennonites, can apply for a Social Security tax exemption if their religious beliefs prevent them from participating in government programs like Social Security.
- State and local government employees: Some state and local government employees covered under public retirement plans aren’t subject to Social Security payroll taxes.
- Foreign government employees: Foreign scholars, teachers, professors, researchers, non-students, and similar workers temporarily present in the U.S. are exempt from Social Security payroll taxes on money earned for services performed within the U.S.
- Self-employed people with low income: You’re exempt if you’re self-employed and earn less than $400. If you earn more than that, the amount subject to self-employment tax is 92.35% of your net earnings from self-employment.
