Social Security recipients saw their monthly check grow by 2.5% in 2025 thanks to a cost-of-living adjustment (COLA) designed to offset the dollar-diminishing power of inflation.
Beneficiaries get a raise nearly every year to retain their purchasing power as prices rise, but since payroll taxes fund the program, increases in benefits can impact your earnings, too.
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Do Benefits Go Up Every Year?
Until a half-century ago, Congress sporadically increased Social Security benefits by adopting legislation to help retirees and other recipients keep pace with rising prices. However, according to the Congressional Research Service (CRS), that changed in 1975 when new legislation mandated automatic annual COLAs based on Consumer Price Index inflation data from the Bureau of Labor Statistics.
The Social Security Administration (SSA) has given a raise to recipients in all but three of the ensuing 50 years: 2010, 2011 and 2016.
The CRS points out that, while COLAs are calculated based on changing prices for goods and services, they can impact three elements of Social Security based not on prices, but wages — and all three can affect your earnings.
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Contribution and Benefits Base
Commonly called the taxable maximum, the contribution and benefits base limits the amount of income the government can tax to fund Social Security.
For 2025, income above $176,100 is not subject to payroll taxes.
The taxable maximum changes annually according to variations in the average wage index. However, it can increase only when a COLA is payable, as it is most years.
Retirement Earnings Test
The retirement earnings test caps the amount of income a beneficiary can earn without penalty while collecting Social Security before reaching full retirement age. In 2025, the agency withholds $1 for every $2 earned over $23,400. For beneficiaries who will reach their normal retirement age later that year, the threshold rises to $62,160 and the SSA reduces the penalty to $1 in $3. Benefits are never reduced upon reaching full retirement age, no matter how much you earn. But for those who claim early, the retirement earnings test limit can increase only when a COLA is issued.
Substantial Gainful Activity
The SSA also caps the amount of money disabled recipients can earn while collecting Social Security benefits, as disabled beneficiaries must not be able to engage in substantial gainful activity (SGA). For 2025, the monthly SGA limit is $2,700 for blind individuals and $1,600 for non-blind recipients.
Like the earnings test and taxable maximum, the SGA limit corresponds with a wage index but can increase only when a COLA is payable.
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This article originally appeared on GOBankingRates.com: 3 Ways Social Security COLA Will Affect Your 2025 Earnings
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