Social Security COLA Is 3.6% for 2027: Will the Increase Raise Your Taxes?
The Social Security Cost of Living Adjustment was just announced — a 3.6% increase in Social Security benefits for 2027. So listen up retirees: Your Social Security benefits might be taxable.
But what exactly does that mean?
First: You don’t have to worry about this if Social Security is your only source of income.
But if you earn income from other sources, like a part-time job or retirement account withdrawals, a portion of your Social Security benefits may be taxable.
Here’s what you need to know.
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How Are Social Security Benefits Taxed?
Not everyone is taxed on their Social Security benefits.
The amount of tax you may owe depends on other income you receive this year.
To figure out if you owe taxes, the Social Security Administration considers what’s known as your “combined income.”
Here’s how it works.
When You Do Pay Taxes on Social Security
Retirees must pay taxes on their Social Security benefits if:
- Half of their yearly Social Security benefits + other income = more than $25,000 for single filers or $32,000 for married couples filing jointly.1
The IRS won’t tax your entire Social Security income, even if you exceed those thresholds. Instead:
50% of your Social Security benefits are taxable if:
- Half of your benefits + other income = $25,000 to $34,000 for individuals or $32,000 to $44,000 for married couples filing jointly.
85% of your Social Security benefits are taxable if:
- Half of your benefits + other income = $34,000 and up for individuals or $44,000 and up for married couples filing jointly
About 40% of people who receive Social Security have to pay federal income taxes on their benefits, according to the Social Security Administration.2
When You Do Not Pay Taxes on Social Security
If Social Security is your only source of retirement income, your benefits won’t be taxed. Even if you earned the maximum taxable wage for 35 years and delayed claiming until age 70 to receive the maximum benefit ($5,181 a month in 2026), your Social Security benefits still won’t be taxed if Social Security is your only source of income.
But what if you have another source of income, like a part-time job or retirement income?
The average monthly benefit amount for retired workers was $2,087, or $25,044 a year in August 2026, according to the Social Security Administration. And remember, Social Security only includes half your benefits when determining your combined income. That means about $12,522 will count toward your taxable total, well below the $25,000 limit for single filers. So if you earned less than $12,478 in 2026 beyond Social Security, your benefits won’t be taxed.
Why Some Retirees Might Pay More Taxes
Still, taxes may be on the rise for some retirees, particularly those who earn income from work, self-employment, interest, dividends or other taxable income (like traditional 401(k) and IRA withdrawals).
That’s thanks to a 3.6% Social Security annual cost-of-living adjustment (COLA) in 2027, which will boost the average payment by about $73 per month. The COLA for 2026 was 2.8%.
While these modest increases may not push you over the limit, the tax threshold hasn’t been updated since it was set in 1984. So COLAs could push retirees who once eked by without owing taxes above the threshold of $25,000 for single filers or $32,000 for married couples filing jointly.
“Unlike income brackets, those thresholds have never been adjusted for inflation,” said Mary Johnson, an analyst with The Senior Citizen League. “More Social Security recipients pay the tax on a portion of their benefits as incomes increase over time.”
What about the senior tax deduction?
The One Big Beautiful Bill Act passed in 2025 includes a senior tax deduction that allows eligible individuals 65 and older to deduct up to $6,000 ($12,000 for married couples filing jointly). It doesn’t affect how you’ll calculate whether your Social Security is taxable, but it could reduce your overall tax bill because it’s a deduction subtracted after your adjusted gross income and taxable Social Security amount is calculated.
The deduction begins to phase out if your adjusted gross income is over $75,000 as a single filer or $150,000 for married couples filing jointly. The deduction is also set to expire after the 2028 tax year, so the relief may be temporary.
What a 3.6% Cost-of-Living Adjustment Could Mean for Your Taxes
Curious how a 3.6% Social Security COLA could impact your taxes next year?
Here’s an example.
Let’s imagine Bob receives $1,700 a month in 2026 from Social Security or $20,400 a year.
Bob also earned $10,000 from a part-time job and withdrew $4,500 from his traditional 401(k).
In this example:
- Half of Bob’s Social Security benefits = $10,200
- His other income = $14,500
- Bob’s combined income is $24,700 in 2026, which means his Social Security benefits aren’t taxable when he files taxes in 2027.
However when a 3.6% COLA goes into effect in January 2027…
In 2027, Bob’s Social Security payment increases by $61.20 per month, raising his yearly Social Security benefit by $734 to $21,134.
Bob earns the same amount from a part-time job in 2027 ($10,000) and withdraws the same amount from his traditional 401(k) ($4,500).
In this example:
- Half of Bob’s Social Security benefits = $10,567
- His other income = $14,500
- Bob’s combined income is $25,067 in 2027, which means that 50% of his Social Security benefits over the threshold are taxable in 2027 when he files taxes. At $67 over the threshold, Bob’s taxed on $33.50 of his Social Security income. Bob’s 2027 tax bill likely wouldn’t break the bank, but you can see how this bill could start to build over time.
Things to Keep in Mind About Social Security, Inflation and Taxes
Social Security benefits include monthly retirement, survivor and disability benefits. They do not include Supplemental Security Income (SSI) payments, which are never taxable.
Also, while 50% or 85% of your Social Security benefits may be taxable, they will be taxed at your ordinary income rate.
Rachel Christian is a freelance financial journalist who helps readers make sense of money — from investing and taxes to retirement and everyday personal finance. Her work has been featured in Yahoo Finance, Business Insider, Bankrate, Orlando Business Journal and The Penny Hoarder. Senior Managing Editor Tiffany Wendeln Connors updated this post for October 2026.
1. Social Security Administration 2. Social Security: Retirement Benefits (PDF)
