3 Important Changes Coming to Social Security in 2026 Everyone Must Know

Social Security is in need of some major reforms within the next seven years if the government wants to continue paying full benefits to retirees. The program's chief actuary, Karen Glenn, expects Social Security to deplete its trust fund before the end of 2032. When that happens, it's required to cut benefits for all recipients, a fate Congress desperately wants to avoid.

Unfortunately, legislators have made little progress in completely overhauling Social Security and ensuring the financial stability of over 70 million recipients. But there are several built-in annual changes to Social Security that could have a major impact on you in 2026, whether you already collect benefits or you're still working.

Image source: Getty Images.

1. The cost-of-living adjustment

One of the biggest changes every year is the cost-of-living adjustment or COLA. The 2026 COLA will be 2.8%. That's a slight bump from the 2.5% retirees received this year, but that's not necessarily a good thing.

The annual COLA is based on a measure of inflation known as the CPI-W. The CPI-W tracks a basket of goods and services representing the typical spending of an urban wage earner or clerical worker. It's not surprising, though, that many seniors, who don't commute to work every day, don't have the same exact expenses as working-age city dwellers. As a result, many seniors report that their life expenses have increased faster than the annual COLA in recent years. Data showing rising housing, utility, and medical care prices backs up that sentiment.

At the very least, the COLA will offset some of those rising prices, whether you've started benefits or not, as long as you're eligible for Social Security benefits (i.e., age 62 or older) by the end of 2025. Those who haven't started Social Security will receive the COLA on their potential benefits on top of the monthly increase they receive for delaying retirement benefits up to age 70.

2. Some workers will pay more in Social Security taxes

High earners may see more taxes withheld from their paychecks starting in January. The government imposes a 12.4% Social Security tax, split between employers and employees, on wages up to a certain amount each year. Any earnings above that threshold only have Medicare taxes withheld, in addition to normal income tax withholding.

The taxable earnings cap for 2026 is $184,500, up from $176,100 in 2025. That means workers earning $184,500 or more will pay about $521 more in Social Security tax in 2026 than this year.

The maximum taxable earnings also impact your Social Security benefits calculation when you retire. Only earnings subject to Social Security tax count toward calculating your average earnings. So, while high earners have to pay more in taxes, it also means they'll receive more when they retire and collect benefits.

3. You can earn more while collecting full benefits

For those who start Social Security early, before they've fully retired, they need to be mindful of the Social Security earnings test. If you earn above a certain threshold, the Social Security Administration will start withholding some or all of your retirement benefits.

The rule applies to anyone collecting benefits who has not yet reached their full retirement age. For every $2 you earn in excess of the annual limit, Social Security withholds $1. There's a higher limit for the year you reach full retirement age, and the withholding drops to $1 for every $3 earned above the limit.

For 2026, the wage limit for the earnings test is $24,480, up from $23,400 this year. The higher limit is $65,160, up from $62,160.

It's important to note any benefits withheld as a result of the earnings test aren't gone for good. The Social Security Administration will adjust your benefit once you reach full retirement age to account for the amount it withheld. It does that by changing your effective age at application. Each month's worth of benefits withheld is equivalent to delaying your application by one month. You can continue working once you reach full retirement age without worrying about the impact of the earnings test.

The rule can catch many Social Security beneficiaries by surprise. If you plan to continue working or return to work while collecting benefits, it's essential to understand the limits and plan for any potential reduction in benefits.

The Motley Fool has a disclosure policy.