A Very Big Change Is Coming to Social Security in 2026. Are You Prepared?

There's a reason so many seniors on Social Security eagerly await news of a cost-of-living adjustment, or COLA, announcement each year. Those raises are crucial in helping retirees maintain their buying power over time.

Social Security COLAs are based on inflation. When there's an increase in inflation from one year to the next, benefits are eligible for a boost.

Image source: Getty Images.

But Social Security benefits themselves aren't the only thing that get adjusted for inflation. The system of taxing wages for Social Security purposes is also based on inflation to some degree. And in that regard, there's a big change coming in 2026 that's likely to affect workers.

Keeping Social Security afloat will cost some workers more

Social Security's primary source of funding is payroll taxes. The current Social Security tax rate is 12.4%, which is split evenly between employees and employers. People who are self-employed, however, pay the entire 12.4% tax themselves.

The good news is that not all income is subject to Social Security taxes. Each year, a wage cap is set that limits the amount of income taxed for Social Security purposes. That cap is based on average annual wage growth, which is influenced by inflation.

Social Security's current wage cap is set at $176,100, so earnings beyond that threshold are exempt from Social Security taxes. But in 2026, the Social Security wage cap is rising to $184,500. This means that higher earners will be forced to pay Social Security taxes on an extra $8,400 in wages compared to 2025.

For people who are salaried workers, that higher wage cap could lead to an extra $520.80 in Social Security taxes. For those who are self-employed, that number needs to be doubled to $1,041.60.

Of course, it's worth noting that taxes on wages are what allow Social Security to keep paying benefits. If you pay into the system now, you're setting yourself up to be able to collect benefits once you retire.

Still, the extra Social Security taxes might sting in the new year, especially if you live in an expensive area of the country where a $184,500 salary, or even one that's quite a bit higher, doesn't go as far.

Plus, living costs are generally higher across the board these days thanks to stubborn inflation and the influence of tariffs. So if you're worried about an increase in your tax burden, the time to plan for it is now.

How to cope with a larger Social Security tax bill

If your wages are high enough to be affected by the upcoming Social Security change, then it's important to plan ahead. One option worth exercising is maxing out contributions to tax-advantaged accounts to shield as much income from the IRS as possible.

That could mean:

• Maxing out an IRA.
• Boosting contributions to your company's 401(k) plan.
• Funding an HSA if your health insurance plan is compatible.

You can also sell investments at a loss strategically in a taxable account to offset capital gains and a limited amount of ordinary income. And of course, come April, be sure to take advantage of any tax deductions or credits you're entitled to on your tax return.

There's a silver lining

You may be unhappy about having to pay more Social Security taxes in 2026. One good thing that may come of it, though, is that if you pay the maximum amount of Social Security tax each year, you may qualify for the program's maximum monthly benefit once retirement rolls around.

That could set you up for a comfortable retirement income -- and help make up for all of those years of losing so much money to taxes.

The Motley Fool has a disclosure policy.