Title: Three Groups That Might Expand Their Social Security Coverage in 2025, Beyond the Cost-of-Living Adjustment
Social Security payments received a 2.5% boost this month thanks to the latest cost-of-livings adjustment (COLA). This increment might be the sole benefit boost for most retirees throughout the year. Their checks won't increase again until the next COLA takes effect in January 2026.
However, a select few could see additional benefit hikes in 2025 due to some lesser-known Social Security rules and changes.
1. Beneficiaries impacted by the Social Security Fairness Act
Recently, the Social Security Fairness Act was enacted, leading to benefit increases for individuals whose benefits were reduced prior due to the Windfall Elimination Provision (WEP) and spouses of these workers who had benefits reduced under the Government Pension Offset (GPO). These provisions impacted individuals with pensions coming from employers that lacked Social Security tax deductions, including several government workers like teachers and police officers.
President Biden signed the bill into law in January, but more details are due for finalization. Those eligible will gain larger monthly benefits going forward. The average increase is projected to be around $360 each month, equating to an additional $4,320 annually.
The law takes effect from benefits issued beyond December 2023. If you claimed Social Security benefits in 2024, you may be entitled to back compensation for amounts withheld due to the WEP or GPO before the bill's implementation.
The specific implementation dates are yet to be announced. The Social Security Administration advises Seniors to verify that they have their most recent mailing address and direct deposit information on file.
2. Residents of Colorado and West Virginia
Two states – Colorado and West Virginia – tax their residents' Social Security benefits. However, in 2025, Colorado slightly adjusted its regulations, and West Virginia is working towards phasing out Social Security benefit taxation.
Colorado previously excluded federal-taxable Social Security benefits from its state income for citizens 65 or more who earned less than $75,000 (single) or $90,000 (joint filers). Now, anyone aged 55 and older will qualify, provided they don't exceed income limits. Bear in mind that Colorado may still tax non-federal-taxable Social Security benefits.
West Virginia exempted Social Security benefits for individuals with AGIs of $50,000 or less (single) or $100,000 (joint filers) from state income tax since 2022. In 2024, the exempted limits rose to 35% for those above the thresholds.
In 2025, the exemption percentage for higher earners will reach 65%. By 2026, West Virginia will initially exempt all Social Security benefits from state income tax for the first time.
3. Individuals reaching Full Retirement Age (FRA) with earnings test-related deductions
Every individual is assigned a Full Retirement Age (FRA) based on their birth year. Today's workers' FRA falls in the range of 66 to 67. You can claim benefits from age 62, but doing so brings penalties. Your checks will be reduced by up to 30% if you claim before your FRA.
If you're below your FRA, you may have earnings exceeding the set thresholds, causing the government to withhold money from your checks. In 2025, individuals who'll be under their FRA all year will lose $1 for every $2 they earn over $23,400, while those approaching their FRA will lose $1 for every $3 earned over $62,160, provided they earn this amount before their birthday.
The withheld benefits will be recalculated once you reach your FRA, and your checks will be increased to compensate for the previous reductions. Those nearing their FRA in 2025 may experience an increase in their checks after their birthday, which depends on the amount they had withheld over the years.
If you have concerns about your earnings test impact on benefits, the Social Security Administration can assist in providing clarifications. You can connect with them via their online platform, telephone, or local office appointments.
- For individuals benefiting from the Social Security Fairness Act, the additional funds might significantly impact their retirement finances, with an estimated average monthly increase of $360 and an annual boost of $4,320 starting from benefits issued beyond December 2023.
- In 2025, residents of Colorado will see a change in their Social Security financial situation, as the state's regulations will expand the age range for those exempt from taxing Social Security benefits, from 65 and above to 55 and older, with income limits set in place. Meanwhile, West Virginia is taking steps to phase out the taxation of Social Security benefits, aiming to exempt all benefits from state income tax by 2026.
