In the year 2024, there has been a significant increase in the Social Security tax limit, which will impact, we can say, quite a lot and very strongly the wealthiest taxpayers by cutting more taxes from their paychecks.
This increase in the salary base for the Social Security tax implies that the income of individuals will be subject to taxes until a certain limit is reached, known as the Social Security tax limit or “salary base”.
These taxes are, without a doubt, the base of the pyramid in the financing of the Social Security program, which provides essential benefits such as retirement, disability, and survival to those who meet the corresponding requirements, to the people who are currently entitled to.
2024 Brings Higher Social Security Tax Limit for Earners
As for tax rates, employees contribute 6.2% of their salary to the Social Security tax, while employers also contribute 6.2% on taxable salaries. On the other hand, self-employed workers must pay 12.4% in full, but they have the possibility to deduct a part equivalent to the employer’s contribution if they are self-employed.
The Social Security tax limit for 2024 has been raised to $168,600, experiencing an increase of $8,400 over the previous year. This change means that the maximum Social Security tax will reach $10,453 for this year, which means that people who earn more than $168,600 will have to pay about $521 additional in Social Security taxes compared to the previous year.
The 2024 COLA Increase and What to Expect in 2025
In addition to this adjustment in the tax limit, the Social Security Administration (SSA) has announced a 3.2% increase in the cost of living (COLA) by 2024.
This update translates into a 5.2% increase in the tax limit, which will result in higher taxes for some high-income taxpayers in this new year. It is essential to consider these changes when planning personal finances and understand their impact on each individual’s income and tax obligations.
Next year’s COLA increase is expected to be smaller than previously projected. It will certainly be lower than last year’s 3.2%, which is good news in itself as it represents that inflation is cooling.
In 2025, the payments of the beneficiaries will see an increase of about 3%, the most recent projection of organizations for the rights of pensioners. It is a slight decrease compared to the revision that had been made in May, which looked at a possible 3.2%, presented by the independent expert in Social Security and Medicare, Mary Johnson.|
For its part, the Senior Citizens League forecasts a lower increase, of just 2.57% in 2025, smaller than the 2.66% it projected a month earlier. “The fact is that COLAs have become less and less likely to keep up with inflation over time,” the Senior Citizens League said in a statement. “When COLAs fall short, it can leave seniors thousands of dollars behind what they expected from Social Security. This is mainly because a COLA shortfall has a long-lasting, cumulative effect.”
