Working and Collecting a Social Security Benefit? Big Changes Are On the Way in 2025.

In October, more than 68 million people collected an average Social Security check of $1,787.08. While this is a relatively modest monthly payout, it's nevertheless vital to the financial well-being of many of these recipients -- especially retired workers.

No program lifts more people out of poverty each year than Social Security. An analysis by the Center on Budget and Policy Priorities found that approximately 22.7 million people were lifted above the federal poverty line in by Social Security in 2022, including 16.5 million adults aged 65 and over.

Additionally, 23 years of annual surveys by national pollster Gallup found that between 80% and 90% of retirees (including 88% in 2024) need their Social Security benefit, in some capacity, to cover their expenses.

With the above being said, it's no surprise that Social Security's cost-of-living adjustment (COLA) reveal is one of the most anticipated announcements each year. On Oct. 10, the Social Security Administration (SSA) unveiled a 2.5% COLA for 2025. This marks the fourth consecutive year that benefits will rise at an above-average pace, when compared to the previous 15 years.

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For the average retired-worker beneficiary, a 2.5% COLA will add an extra $49 per month to their payout. Meanwhile, the average worker with disabilities and average survivor beneficiary will see their respective Social Security checks increase by $38 per month in 2025.

But this is far from the only change set to take place when the calendar turns to 2025. If you're still working and receiving a Social Security check, there are a couple of big changes you'll want to be aware of.

Early filer penalties are being adjusted for retired workers

Arguably the biggest Social Security change in 2025 for beneficiaries who are still working has to do with adjustments to income thresholds associated with the retirement earnings test. The retirement earnings test allows the SSA to withhold some or all of your benefits depending on how much you earn, and whether or not you've reached/will reach your full retirement age in the current year.

Your full retirement age represents the age you're eligible to receive 100% of your retired-worker benefit, and it's determined by your birth year. Anyone born in or after 1960 has a full retirement age of 67.

Regardless of when you choose to begin collecting your retired-worker check from Social Security, the retirement earnings test is no longer applicable once you've reached your full retirement age. But if you've not yet reached your full retirement age and are collecting a monthly payout from Social Security, early filer penalties may apply.

For example, early filers who won't reach their full retirement age in 2024 can have $1 in benefits withheld by the SSA for every $2 in earned income (wages and salary, but not investment income) above $22,320, which works out to $1,860 per month. In 2025, this same category of early filers will be able to earn up to $23,400 ($1,950 per month) before withholding kicks in.

Benefit withholding limits are substantially more lenient for early filers who will reach their full retirement age in 2025. This year, the SSA can withhold $1 in benefits for every $3 in earned income above $59,520 ($4,960 per month). But in the upcoming year, this income threshold will expand to $62,160, or $5,180 per month.

Keep in mind that these withheld benefits aren't lost. The SSA will return them to you in the form of a higher monthly payout once you reach your full retirement age.

Disability income thresholds are changing, too

In addition to adjusting the earned income thresholds associated with the retirement earnings test, the withholding thresholds for Disability Insurance Trust Fund beneficiaries are climbing, too.

This year, non-blind workers with disabilities were allowed to bring home up to $1,550 each month without their disability benefit being stopped. In 2025, this bar will increase to $1,620 per month, thereby allowing non-blind workers to earn up to $840 more per year without any penalty.

The income threshold adjustment for blind workers with disabilities is even more pronounced. In 2024, blind workers were able to earn $2,590 per month without having their Social Security disability benefit halted. Next year, this threshold is set to rise to $2,700 per month.

Image source: Getty Images.

You're more likely to be taxed on your Social Security benefit

The final thing workers receiving Social Security benefits will want to be aware of in the new year is the growing likelihood of being taxed on a portion of their payout. Yes, Social Security benefits can be taxed at the federal level, as well as in nine states.

Back in 1983, Social Security's asset reserves were dwindling, and the prospect of sweeping benefit cuts was tangible without reform. The Social Security Amendments of 1983, which represent the last major overhaul of America's leading retirement program, led to the gradual increase of payroll taxation and the full retirement age, as well as the introduction of the taxation of benefits.

Beginning in 1984, up to 50% of benefits could be exposed to federal taxation if provisional income (adjusted gross income + tax-free interest + one-half of benefits) surpassed $25,000 for a single filer or $32,000 for a couple filing jointly. In 1993, a second tier was added that exposed up to 85% of benefits to federal taxation if provisional income topped $34,000 for a single filer or $44,000 for a couple filing jointly.

The problem for working Americans receiving benefits is twofold. First, these taxation thresholds have never been adjusted for inflation. Second, cost-of-living adjustments have steadily increased nominal-dollar payouts over time, thereby making it likelier that beneficiaries will be exposed to some level of federal tax on their Social Security check.

With Social Security facing an estimated $23.2 trillion funding obligation shortfall through 2098, there's no reason for these thresholds to be updated to account for inflation (i.e., the program needs all the income it can get). In other words, the chance of current and future retirees owing tax on some portion of their benefits grows with each COLA.

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