These 2 Expenses Might Eat Up More of Your 2027 Social Security COLA Than Expected
Key Points
Medicare Part B premiums and Social Security benefit taxes might consume some or all of your COLA.
We will learn the 2027 Medicare Part B premium increase later this year.
You could owe ordinary income taxes on up to 85% of your Social Security benefits in 2027.
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The 2027 Social Security cost-of-living adjustment (COLA) will give all seniors' checks a boost in January, but rising Medicare Part B premiums and possible Social Security benefit taxes may limit how far the COLA actually goes for you. There isn't an easy way around higher taxes and insurance costs, but preparing for them can at least help you avoid being caught off guard.
Here's a closer look at how to prepare yourself and your budget for 2027.
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1. Medicare Part B premiums
The Social Security Administration automatically withholds your Medicare Part B premiums from your checks if you're enrolled in both programs. Part B premiums typically rise annually, though we don't yet know what the 2027 increase will be.
You should receive a notice from Medicare later in the year listing the 2027 premiums and deductibles. The Social Security Administration will also send you a personalized COLA notice in early December. This will give your exact benefit amount for next year, including Medicare withholding. If you have any questions about this, contact the Social Security Administration after you get your notice.
2. Social Security benefit taxes
The Social Security Administration taxes up to 85% of your benefits at your ordinary income tax rate if your provisional income -- adjusted gross income (AGI), plus nontaxable interest, and half your annual Social Security benefit -- exceeds certain thresholds. The following table breaks it down:
|
Marital Status |
0% of Benefits Taxable If Provisional Income Is Under: |
Up to 50% of Benefits Taxable If Provisional Income Is Between: |
Up to 85% of Benefits Taxable If Provisional Income Exceeds: |
|---|---|---|---|
|
Single |
$25,000 |
$25,000 and $34,000 |
$34,000 |
|
Married |
$32,000 |
$32,000 and $44,000 |
$44,000 |
Data source: Social Security Administration.
You may have faced these benefit taxes before, but you could pay more in 2027 than you have in years past because your provisional income will likely increase due to the COLA. If you've never owed Social Security benefit taxes in the past, next year could be the first time.
You might be able to avoid or reduce how much you owe in taxes by limiting your retirement account withdrawals, but this isn't always possible. When benefit taxes are inevitable, the next-best move is to plan for them.
Once you know the 2027 COLA, work with an accountant to estimate how much these taxes could cost you next year. Then, build them into your budget so you aren't hit with a huge, unexpected bill at tax time.
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