Social Security's cost-of-living adjustment (COLA) rises most years, but the income thresholds used to determine whether your benefits are taxable have not changed since 1993. As a result, a growing share of retirees find more of their Social Security benefits subject to federal income tax, even when their spending habits haven't changed at all. Every October, the Social Security Administration announces the COLA for the year ahead, and retirees reasonably focus on the percentage.
For retirement income planning, the percentage is the least interesting part. What matters more is what that raise does inside a federal tax test whose thresholds were set decades ago and have never been adjusted since.
How Is the Social Security COLA Calculated?
The COLA isn't a forecast or a political decision. Since 1983, it has been calculated from the CPI-W (the Consumer Price Index for Urban Wage Earners and Clerical Workers), comparing the third-quarter average of the current year to the third quarter of the last year a COLA took effect.
On October 14, 2026, the Social Security Administration announced a 3.6% increase for 2027, effective with benefits paid in January 2027. The increase for 2026 was 2.8%, announced on October 24, 2025. Before that, the increase for 2025 was 2.5%. These adjustments are meant to help benefits keep pace with inflation. But a COLA is a raise, and a raise is income. That's where planning starts.
Is Social Security Taxable? Understanding the "Combined Income" Test
Whether any of your Social Security is taxable depends on a figure the Social Security Administration calls "combined income": one-half of your benefits, plus all of your other income, plus any tax-exempt interest. That total is then compared against a fixed base amount to determine what portion, if any, of your benefits is included in taxable income.
The base and upper thresholds are:
- Base amount: A lower combined-income threshold applies to single filers, with a somewhat higher threshold for married couples filing jointly. At or below this amount, none of your benefits are taxable.
- Above the base amount: Up to 50% of your benefits can become taxable.
- Upper amount: A second, higher combined-income threshold applies, again with separate figures for single filers and married couples filing jointly. Above this threshold, a larger portion of your benefits can be included in taxable income.
Because these thresholds and the applicable percentages are set by federal law and can be the subject of legislative change, readers should confirm the current figures in IRS Publication 915 (opens a separate site in a new tab) or with a qualified tax professional before relying on them. The share of your benefit that can be included in taxable income is capped under current law. It is not a tax rate applied to your benefits. Your actual tax owed depends on your total return, deductions, and marginal tax bracket.
Does Tax-Exempt Interest Count Toward This Test?
Yes. Interest from municipal bonds isn't taxed on its own, but it counts in full toward the combined income test used to determine Social Security taxability. Families who hold tax-exempt income specifically to keep their overall tax bill low are sometimes surprised to find that it pushes more of their Social Security benefits into the taxable column. This is a common blind spot in retirement income planning, since municipal bond interest often "feels" tax-free even when it isn't fully outside the picture.
Why Do More Retirees Owe Taxes on Social Security Every Year?
More retirees owe taxes on Social Security benefits each year because the income thresholds used in the combined income test have never been indexed for inflation or wage growth, while COLA increases continue to raise benefit income annually. These thresholds were established by federal legislation and have not been adjusted since. Verify the current rules and their legislative history with IRS Publication 915 or a qualified tax professional.
Because the test counts half of your benefits, every COLA raises the input side of the equation while the thresholds themselves stay fixed. This doesn't mean any particular household's taxes will automatically rise, as that depends on the full tax return. It does mean more households may cross these lines over time, since the thresholds stay fixed while benefit income keeps rising.
Consider a composite couple we'll call the Morettis (not an actual client, but a representative scenario). Their pension and investment income already sat close to the upper threshold. Last year's 2.5% COLA increase was modest, but it was enough to move more of their benefits into the taxable column on the return they filed this spring. Nothing about their spending changed. The math around them did.
How Does IRMAA Relate to Social Security Taxes?
Medicare's income-related monthly adjustment amount (IRMAA) is a separate surcharge that runs on its own timeline, generally based on modified adjusted gross income from the tax return filed two years earlier. This means a change in income this year may not affect your Medicare premiums until two years from now, a timing gap that catches many retirees off guard.
For example, the standard Part B premium and IRMAA surcharge thresholds for any given year are generally based on income reported two years prior. The specific premium amounts and income thresholds that trigger IRMAA surcharges are updated annually. Consult Medicare.gov (opens a separate site in a new tab) or the Centers for Medicare & Medicaid Services (CMS) for the current figures before making income-related decisions.
So the Social Security tax test and the Medicare IRMAA surcharge look at two different years of income. A decision that raises income in one year can show up on that year's tax return and then resurface as a higher Medicare premium two years later. Treating these as a single event rather than two separate, time-delayed consequences is one of the more common ways families misjudge both their taxes and their healthcare costs in retirement. Our article on three year-end money moves and their different clocks walks through how Roth conversions can interact with Medicare premiums.
What Does This Mean for Retirement Income Planning?
Knowing which side of each threshold your household sits on, and which tax year each financial decision will actually be measured in, is part of seeing your retirement income as one connected picture rather than a set of separate, disconnected statements.
This kind of planning won't make every tax bill disappear, and it isn't a promise of any particular result. But it is how better-informed decisions get made: decisions that account for both the immediate tax impact of a COLA increase and the delayed impact on Medicare premiums two years down the road.
Advocate Wealth Solutions is an attorney-led firm, founded by Gregory S. DuPont, JD, CFP®, that looks at tax, insurance, investment, and legal questions together. If you'd like a look at where your Social Security income, other income sources, and Medicare premiums line up, that's a conversation we're glad to have. You can also learn more about our tax planning and retirement income services, or read how your Social Security claiming age decides more than you might expect.
If you'd rather start on your own, a simple first step is to put last year's Social Security benefit statement next to your most recent Medicare premium notice and write the relevant tax year on each. This small exercise often reveals how closely, or how loosely, your income timeline is connected across both systems. To go deeper, take our Retirement Tax Trap Scorecard (opens a separate site in a new tab), a quick, structured way to see where your retirement income may be exposed to hidden tax risks before they show up on a return.
Frequently Asked Questions
Does everyone pay taxes on their Social Security benefits?
No. Whether your benefits are taxable depends on your combined income relative to the base and upper thresholds. Households with combined income at or below the base threshold for their filing status owe no federal tax on their Social Security benefits. Consult IRS Publication 915 for the current threshold amounts.
Will my Social Security benefits ever be taxed at 100%?
No. Under current federal law, the taxable portion of your Social Security benefits is capped at a set maximum percentage, regardless of how high your combined income rises. For the current cap and rules, consult IRS Publication 915 or a qualified tax professional, as tax rules are subject to change.
Can I avoid crossing these thresholds by adjusting my withdrawals?
Sometimes. Because combined income includes withdrawals from taxable accounts, tax-exempt interest, and half of your benefits, the timing and source of retirement withdrawals can influence which side of a threshold you land on in a given year. This is a strategic area where personalized retirement income planning can help.
Are state taxes on Social Security the same as federal taxes?
No. This article addresses federal taxation of Social Security benefits only. State tax treatment varies significantly, and some states do not tax Social Security benefits at all. Consult your tax professional about your specific state's rules.
Educational information only, not legal, tax, or investment advice, and not a guarantee of any particular outcome. Tax rules change and every household is different; talk with your own tax professional and financial advisor about your specific situation.
Published October 16, 2026. Tax law, contribution limits and thresholds change, so read any figure here as of its stated date. None of it is advice about your own situation. Advocate Wealth Solutions is a fee-based planning firm in Dublin, Ohio, and a Clarity Map Session is where questions about your own accounts get answered.
