New years always bring changes. 2025 will be no different. Some of these changes shouldn’t be surprises. For example, the Social Security Administration (SSA) has already announced changes to Social Security coming next year.

Some of these changes are good. Others are not so good. Here’s the one Social Security change in 2025 that will do the most damage.

For many people, paying taxes is a necessary evil. The new year will bring even greater calamity for some. In 2025, FICA taxes will rise for higher earners due to a major change to Social Security.

To be clear, the FICA tax rate does not change. The share will remain at 15.3% and will be divided equally between employees and employers. Of this, 12.4% (6.2% each for employees and employers) goes into financing social security.

However, the amount of income subject to the Social Security portion of the FICA tax will change next year. The maximum taxable income is currently $168,600 but will increase to $176,100 in 2025. There is no limit to the amount of income on which FICA taxes must be paid to fund Medicare.

Some Americans who begin collecting Social Security retirement benefits before reaching full retirement age (FRA) but continue to work could also be negatively affected by a change in 2025. Currently, Social Security withholds benefits for every $2 of income above $22,320 for those earning less than their FRA. This limit will increase to $23,400 in the new year. Social Security also currently withholds $1 in benefits for every $3 of earnings over $59,520 in the year a person reaches their FRA. This threshold will increase to $62,160 in 2025.

Ironically, the most painful change to Social Security in 2025 will be one designed to help people. All Social Security recipients will receive a 2.5% cost of living adjustment (COLA) starting in January. The purpose of the COLA is to protect Social Security benefits from being eroded by inflation. But for many (and perhaps even most) individuals, the 2.5% increase will not achieve that goal.

The 2025 COLA will be the lowest increase since 2020. In some ways, this is good news. A lower COLA means lower inflation because the adjustment is based on an inflation metric – the Consumer Price Index for Urban Wage Earners and Office Workers (CPI-W).

But the CPI-W has a well-known flaw: It doesn’t accurately reflect increased costs for seniors. Pensioners in particular could feel the effects of the low COLA next year. Medical costs in particular tend to rise faster than overall inflation. We saw this in the most recent inflation report for November, when medical care costs rose 3.8% year-over-year while the CPI-W rose 2.4%.

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