Millions of Americans relying on Social Security will see a number of significant financial adjustments in 2026, impacting everything from their monthly benefit checks to their tax obligations. A modest cost-of-living adjustment is set to provide a small boost, but rising Medicare premiums and shifts in tax rules will create a complex financial picture for retirees and those approaching retirement.
These changes, driven by inflation, wage growth, and new federal legislation, will affect over 70 million beneficiaries. Understanding these updates is crucial for effective financial planning in the coming year.
Key Takeaways
- Social Security and SSI beneficiaries will receive a 2.8% cost-of-living adjustment (COLA) in 2026, increasing the average retirement benefit by approximately $56 per month.
- The standard Medicare Part B premium is projected to rise by 11.6% to $206.50, partially offsetting the COLA increase for most recipients.
- A new, temporary tax deduction of up to $6,000 on Social Security income will be available for eligible individuals aged 65 and older.
- The maximum amount of earnings subject to Social Security tax will increase to $184,500.
Benefit Checks Get a Modest Boost
In 2026, Social Security recipients will see a 2.8% cost-of-living adjustment (COLA) applied to their monthly payments. This increase is a response to recent inflation trends and is slightly higher than the 2.5% adjustment made in 2025.
The Social Security Administration estimates this will raise the average monthly retirement benefit from $2,015 to about $2,071, an increase of $56. The adjustment will first appear in payments issued in January 2026. For those receiving Supplemental Security Income (SSI), the increased payment will arrive on December 31, 2025.
While any increase is welcome, it follows a period of significant price hikes. The 2026 COLA is more aligned with historical averages, which have hovered around 2.6% since 2000, but it is much smaller than the large adjustments seen in 2022 (5.9%) and 2023 (8.7%) that were driven by unusually high inflation.
Medicare Premiums Will Rise Sharply
A significant portion of the COLA increase will be consumed by higher healthcare costs. The standard monthly premium for Medicare Part B, which covers doctor visits and outpatient services, is projected to jump by 11.6%.
This means the premium will likely rise from $185 to $206.50 per month. Since most beneficiaries have this premium deducted directly from their Social Security checks, the net gain from the COLA will be smaller. The $21.50 monthly increase in the Part B premium will effectively reduce the average $56 benefit boost by nearly 40%.
By the Numbers: COLA vs. Medicare
- 2026 COLA: +2.8%
- Average Monthly Benefit Increase: +$56
- Projected Medicare Part B Premium Increase: +$21.50
- Net Gain for Average Retiree: Approximately $34.50 per month
Navigating Tax and Income Rules in 2026
Beyond benefit checks, several other financial rules are changing for both current workers and retirees. These adjustments affect how much is paid into the system and how benefits are taxed.
Higher Taxable Earnings Cap for Workers
The amount of income subject to Social Security taxes is adjusted annually based on national wage trends. In 2026, this limit will increase to $184,500, up from $176,100 in 2025.
Workers pay a 6.2% Social Security tax on their earnings up to this cap, with employers matching that amount. Self-employed individuals pay the full 12.4%. Any income earned above $184,500 in 2026 will not be subject to Social Security tax.
A New Tax Break for Older Americans
A notable change for 2026 is the introduction of a new federal tax deduction aimed at reducing the tax burden on Social Security income for older adults. The temporary provision allows eligible taxpayers aged 65 and older to deduct up to $6,000 from their taxable income.
The full deduction is available to individuals with a modified adjusted gross income (MAGI) up to $75,000 and married couples filing jointly with a MAGI up to $150,000. A partial deduction is available for those with higher incomes, phasing out completely for individuals earning over $175,000 and couples over $250,000.
This new deduction is designed to provide some relief, but it is temporary and scheduled to last through the 2028 tax year.
While beneficial for millions of retirees, analysis from Social Security's chief actuary indicates the deduction will cost the program approximately $168.6 billion in tax revenue over the next decade. This could accelerate the projected depletion date of the retirement trust fund by up to six months, moving it from early 2033 to late 2032.
Working While Receiving Benefits
The rules for those who work while collecting Social Security benefits before reaching their full retirement age (FRA) are also being updated. The FRA is currently between 66 and 67, depending on your birth year.
Understanding the Earnings Test
The Social Security earnings test is a mechanism that temporarily reduces benefits for individuals who claim them early while still earning significant income from work. Once a person reaches their full retirement age, the test no longer applies, and their benefit amount is recalculated to credit them for the withheld payments.
Updated Income Limits for 2026
For beneficiaries who will not reach their FRA during 2026, the earnings limit is increasing to $24,480 per year. For every $2 earned above this amount, $1 in benefits will be withheld.
A more lenient rule applies in the year a beneficiary reaches their FRA. During the months leading up to their birth month, they can earn up to $65,160. For every $3 earned above this higher threshold, $1 in benefits will be withheld. The earnings test disappears completely once the beneficiary reaches their full retirement age.
Rules for Disability Beneficiaries
The income rules for those receiving Social Security Disability Insurance (SSDI) are different. To qualify for SSDI, an individual must be unable to engage in what the SSA calls “substantial gainful activity.”
In 2026, this earnings threshold will be $1,690 per month for most SSDI recipients. For beneficiaries who are blind, the limit is higher, at $2,830 per month. Earning more than these amounts could result in a loss of disability benefits.
