Retirement Social Security

The Unfortunate Truth About the 2027 Social Security COLA

Social Security benefits are getting a big boost in 2027, but that could leave some seniors in the lurch.

By Maurie Backman , Edited by Laura Hohenstein

Updated Nov. 9, 2026

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Social Security is one of the most essential senior benefits today. And there are some retirees who would not be able to pay their bills in full without those monthly checks.

The good news is that Social Security benefits are getting a nice increase in 2027. The Social Security Administration recently announced a 3.6% cost-of-living adjustment (COLA), which should take the average monthly benefit from $2,095 up to $2,170.

But there's a hidden problem with the upcoming 3.6% COLA Social Security recipients need to know about, and it especially applies to those who plan to work while receiving benefits.

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Social Security benefits are still subject to taxes

As part of his presidential campaign, Donald Trump pledged to do away with taxes on Social Security benefits. But he didn't succeed.

When his One Big Beautiful Bill Act was passed, it included a temporary $6,000 senior tax deduction that temporarily exempts most Social Security recipients today from paying taxes on their monthly benefits. But that $6,000 deduction is set to expire in 2028. This means that seniors who aren't forced to pay taxes on their Social Security benefits now might owe those taxes in just a few years.

Plus, even with the $6,000 deduction, some Social Security recipients may have a high enough income to be subject to federal taxes on their benefits.

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When taxes on Social Security apply

Whether seniors owe taxes on their Social Security benefits or not depends on something known as provisional income. Provisional income is calculated as the total of adjusted gross income, tax-exempt interest income, and 50% of annual Social Security benefits.

When provisional income reaches $25,000 for seniors who file taxes as single, or $32,000 for seniors who are married filing jointly, taxes on Social Security benefits can apply. These income thresholds were established decades ago by Congress and are not eligible for an inflation adjustment, which means that over time, it becomes harder for Social Security recipients to avoid owing taxes on their benefits.

Why a large COLA could sting for some seniors

While a 3.6% Social Security COLA is good news in theory, the problem is that it could cause more seniors to owe taxes on their Social Security benefits.

Social Security payments themselves are part of the provisional income formula that determines whether benefits are taxed or not. A generous boost in 2027 could raise some people's income so that their Social Security checks aren't theirs to keep in full.

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Social Security recipients who work might have it worse

Seniors who collect Social Security are allowed to earn money from a job at the same time. And working can be beneficial for retirees, because for many people, Social Security just isn't enough to cover every expense.

Once you reach full retirement age (FRA), you can earn any amount of money from a job without risking having Social Security benefits withheld. Prior to FRA, you'll be subject to an earnings test limit, and exceeding it could mean having some of your Social Security withheld temporarily.

If you're working while receiving Social Security and have reached your FRA, you may be inclined to increase your hours or wages so you're able to supplement your benefits nicely. But wages from a job, combined with a generous COLA, could push your provisional income to the point where you have to pay taxes on some of your Social Security benefits.

Under the rules, the maximum percentage of your Social Security benefits that can be subject to taxes is 85%. And you may not have to pay taxes on 85% of your benefits but rather, a smaller percentage. But it's important to understand when taxes on Social Security apply, and how a combination of wages from a job plus a large COLA could change your financial situation.

Bottom line

Your Social Security benefits may be a big part of your retirement plan. And you may be very excited to be getting a 3.6% COLA in the new year. But it's important to recognize that the more your income increases overall, the more likely you may be to owe taxes on your Social Security checks.

Working and earning money in retirement only compounds this problem. However, that doesn't mean working is a bad idea. Working could actually be a great way to avoid financial struggles. And there can be non-financial benefits, too. Work could serve as a social outlet and a way to keep busy, thereby helping you avoid feeling bored and lonely.

The key, though, is to know when taxes on Social Security benefits apply and plan accordingly. Do the math so that if a large COLA combined with part-time wages results in a change to your tax situation, it won't catch you completely off guard.

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