If you earned more than $168,600 in 2024, get ready for a slight adjustment to your paycheck this year.
Why the Change?
You’ll be resuming Social Security tax payments in 2025. This means you’ll contribute 6.2% of your income towards Social Security until you reach the annual maximum of $176,100.
What Counts Towards Your Income?
- Salary: Your base pay.
- Bonuses: Any performance-based incentives.
- Commissions: Earnings based on sales or performance.
- Exercised Stock Options: When you convert stock options into shares.
- Vested RSUs: Restricted Stock Units that have become yours to keep.
Important Notes:
- Individual Limits: This income limit applies to each individual taxpayer. Combining income with a spouse does not count towards the $176,100 limit.
- Job Changes: If you change jobs, your new employer will continue to withhold Social Security taxes until you reach the $176,100 threshold with them. You’ll typically receive a refund for any excess Social Security taxes paid when you file your taxes.
Preparing for Tighter Cash Flow:
- Project Your Income: Estimate when you’ll reach the $176,100 limit based on your expected income throughout the year.
- Plan Accordingly: Adjust your budget to account for the reduced take-home pay in the early months of 2025 and increased paycheck towards the end of the year.
What to Do with Increased Cash Flow Later in the Year:
Once you reach the income limit and Social Security tax deductions cease, consider these options:
- Boost Retirement Savings: Maximize contributions to 401(k)s, IRAs, and other retirement accounts.
- Participate in Employee Stock Purchase Plans (ESPPs): Take advantage of potential discounts on company stock.
- Build Emergency Savings: Increase your emergency fund to cover unexpected expenses.
- Plan for End-of-Year Expenses: Budget for travel, holiday gifts, and other year-end expenses.
I hope this blog post helps you prepare for the return of Social Security taxes in 2025. By understanding the changes and planning accordingly, you can navigate this adjustment smoothly and maintain your financial goals.
