How the 2026 Social Security COLA Could Affect Your Taxes
How the 2026 Social Security COLA Could Affect Your Taxes
The 2026 Social Security cost-of-living adjustment (COLA) means Social Security beneficiaries will receive a 2.8% increase in benefits. The increase began with benefits payable in January 2026. For the average retired worker, that means an increase of about $56 per month.
A larger monthly benefit can help retirees keep up with rising expenses. However, it can also increase the amount of Social Security benefits that may be subject to federal income tax, depending on your total income. Understanding how the COLA fits into your overall tax picture can help you plan ahead rather than be surprised at tax time.
Source: Social Security Administration, 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
What Is the Social Security Cost-of-Living Adjustment?
Each year, the Social Security Administration adjusts benefits to account for changes in the cost of living. The COLA is based on the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).
For 2026, Social Security benefits increased by 2.8%. The increase applies to nearly 71 million Social Security beneficiaries, with higher payments beginning in January 2026.
Source: Social Security Administration, 2026 Cost-of-Living Adjustment (COLA) Information
While a bigger Social Security benefit can be helpful, it is important to remember that Social Security income is not automatically tax free. Depending on your overall income, a portion of your benefits may be subject to federal income tax.
How Social Security Benefits Are Taxed
Whether your Social Security benefits are taxable depends in part on what the IRS calls your "combined income."
Generally, combined income is calculated by adding:
• Your adjusted gross income
• Any tax-exempt interest income
• One-half of your annual Social Security benefits
The IRS uses this calculation to determine whether a portion of your Social Security benefits is taxable. For many taxpayers, up to 50% of their benefits may be taxable. At higher income levels, up to 85% of benefits may be included in taxable income.
For federal tax purposes, the base amounts are generally:
• $25,000 for single, head of household, or qualifying surviving spouse filers
• $32,000 for married couples filing jointly
Different rules apply to some married taxpayers filing separately.
Source: Internal Revenue Service, Social Security Income
It is important to understand that saying "up to 85% of your benefits may be taxable" does not mean you pay an 85% tax rate. It means that up to 85% of the benefit amount can be included in your taxable income and then taxed according to your applicable federal income-tax rates.
Why the 2026 Increase Matters for Tax Planning
The 2.8% COLA increases the amount of Social Security income you receive during the year. Because one-half of your Social Security benefits is included when calculating combined income, a larger benefit can increase that calculation as well.
For someone who is close to a Social Security taxation threshold, the additional income could affect how much of their benefits is taxable. For someone who already has a portion of their benefits subject to tax, the increase could result in a larger dollar amount of benefits being included in taxable income.
The impact can be more significant for retirees who receive income from multiple sources, such as:
• Required minimum distributions from traditional retirement accounts
• Pension income
• Part-time work or consulting income
• Taxable investment income
• Other taxable income
These sources of income can contribute to the overall income calculation used to determine the taxability of Social Security benefits.
It is also important to distinguish between Social Security taxation and federal income-tax brackets. A COLA can increase the amount of Social Security benefits included in taxable income, but that does not automatically mean you will move into a higher federal income-tax bracket.
Source: Internal Revenue Service, Publication 915
Strategies to Help Manage the Tax Impact
You cannot control the Social Security COLA, but you may be able to manage other aspects of your income and tax picture.
Depending on your circumstances, potential planning strategies may include:
• Reviewing the timing and amount of retirement account withdrawals
• Considering Roth conversions during lower-income years
• Coordinating the timing of investment sales or other taxable income
• Reviewing your overall retirement income strategy
• Evaluating whether a tax-efficient withdrawal strategy could help manage taxable income
Roth conversions, for example, may reduce future required minimum distributions for some retirees, but the conversion itself can create taxable income in the year it occurs. The right strategy depends on your individual circumstances.
Because tax rules and individual situations vary, it is important to consider your Social Security benefits alongside your other income, deductions, tax bracket, and long-term financial goals.
Frequently Asked Questions
Will all my Social Security benefit be taxed because of the COLA?
Not necessarily. Depending on your income and filing status, none, some, or up to 85% of your Social Security benefits may be included in taxable income for federal tax purposes. The 2.8% 2026 COLA does not automatically make all Social Security benefits taxable.
Source: Internal Revenue Service, Publication 915
Does California tax Social Security benefits?
California does not tax Social Security benefits at the state level. If Social Security benefits are included in your federal adjusted gross income, California allows an adjustment to exclude that income when calculating California taxable income. Federal income-tax rules still apply.
Source: California Franchise Tax Board, Social Security
Can I have taxes withheld directly from my Social Security check?
Yes. You can request voluntary federal income-tax withholding from your Social Security payments. Beneficiaries can elect federal income-tax withholding using Form W-4V.
Source: Internal Revenue Service, Topic No. 423, Social Security and Equivalent Railroad Retirement Benefits
How do I know if the COLA will affect my taxes?
The best way to understand the potential impact is to look at your entire income picture. Consider your Social Security benefits along with retirement account withdrawals, pensions, investment income, employment income, and other taxable income.
A financial or tax professional can help you evaluate how these pieces work together and whether there are planning opportunities before the end of the year.
Planning Ahead for a Larger Benefit
The 2026 Social Security COLA is designed to help benefits keep pace with changes in the cost of living. For retirees, the additional income can be helpful, but it is also worth considering how the increase fits into the larger tax and retirement-income picture.
Rather than looking at the COLA in isolation, consider how your Social Security benefits interact with your other sources of income and your overall tax strategy.
If you would like help thinking through how the 2026 COLA could affect your specific tax situation, our team is glad to walk through it with you.
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