Most retirees expect their Social Security benefits to rise each year. After all, that’s what the Cost-of-Living Adjustment (COLA) is designed for (1). On paper, this annual increase is meant to help benefits keep pace with inflation.
However, in practice, many retirees see part of that adjustment offset by federal income taxes triggered when their total income crosses certain thresholds. Because these thresholds are not indexed to inflation, a growing number of Social Security recipients are affected each year. This phenomenon is sometimes called “tax bracket creep.”
If you’re collecting benefits in 2026 or beyond, here’s what you need to know about this oft-overlooked tax rule and how it can reduce your net Social Security income.
Social Security wasn’t always taxed at the federal level. That changed in 1984, when lawmakers enacted reforms introducing taxation for beneficiaries with combined annual income above $25,000 for individuals and $32,000 for married couples filing jointly (2).
The goal was simple: tax higher-income beneficiaries to strengthen the system’s finances. However, Congress did not include a mechanism to adjust these thresholds for inflation. In other words, the limits have been frozen for more than 40 years and remain unchanged in 2026 (3).
If the thresholds had been indexed for inflation, they would be roughly $77,556 for individuals and $99,270 for married couples today.
Because the limits have remained static, more beneficiaries are subject to income taxation on their Social Security over time. As of 2021, roughly half of all beneficiaries pay some federal income tax on their benefits (4).
Each year, inflation and COLA increases push more retirees over the line, exposing a larger portion of benefits to taxation.
This functions like a hidden tax increase: rates haven’t risen, but inflation gradually increases the number of affected beneficiaries. It is unlikely that lawmakers will reform this system in the near future.
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Although some lawmakers and President Donald Trump have proposed eliminating taxes on Social Security, these proposals face significant fiscal constraints.
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In other words, the tax on Social Security benefits plays a key role in funding the program. As of 2024, this tax contributed about 4% of total annual revenue — roughly $55.1 billion, according to the Trustees report (5).
Over the next 10 years, the taxation of benefits is projected to generate more than $1.5 trillion in total for the Social Security and Medicare trust funds, according to the Center on Budget and Policy Priorities (6).
Eliminating the tax or raising income thresholds could reduce this revenue and accelerate the projected depletion of the trust fund, currently expected around 2032.
Put simply, taxpayers and retirees should not expect adjustments to the income thresholds or the “stealth tax” any time soon.
You can’t eliminate this stealth tax, but now that you’re aware of it, you can plan to reduce its impact.
The first step is understanding how “combined income” is calculated, because this determines whether your Social Security benefits are taxable (7).
Combined income equals:
Your adjusted gross income (AGI)
Plus any tax-exempt interest, such as municipal bond interest
Plus 50% of your Social Security benefits
If this total exceeds $25,000 for single filers or $32,000 for married couples filing jointly, up to 50% of your Social Security benefits may be taxed. At higher income levels, up to 85% of benefits can be included in taxable income.
With this in mind, you can carefully plan 401(k) or IRA withdrawals and Roth conversions to help stay below the thresholds. If your income consistently exceeds these limits, make sure you factor the tax burden into your retirement budget. Overlooking it can create a silent drain on your finances.
For millions of retirees, this frozen tax gradually reduces the real value of their Social Security income. The sooner you account for it, the more control you retain over your retirement cash flow.
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Social Security Administration (SSA) (1); (2); (3); Congress.gov (4); Social Security Administration (SSA)(5); Center on Budget and Policy Priorities (6); AARP (7).
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
