Social Security COLA Rises to 3.6% for 2027, Up From 2.8%
The 2027 Social Security cost-of-living adjustment is 3.6%, up from the 2.8% increase paid for 2026. The Social Security Administration announced the 3.6% COLA on October 14, 2026, and it will take effect for benefits payable in January 2027. The average retired-worker benefit rises from an estimated $2,095 to $2,170 a month, about $26,040 a year.
If you collect Social Security while living overseas, you get the identical raise. A raise does not automatically create a tax bill because at least 15% of a Social Security benefit is always tax-free. If your benefit is below the base amount for your filing status, none of it is taxable at all.
An Inflation Formula Sets Your COLA Every Year
A cost-of-living adjustment, or COLA, is the annual increase applied to Social Security and Supplemental Security Income benefits so that inflation does not erode their purchasing power. By law, it equals the percentage rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of one year to the third quarter of the next.
That formula produced the 2027 figure. The CPI-W rose 3.6% from the third quarter of 2025 to the third quarter of 2026, according to the SSA 2027 COLA fact sheet, and SSA announced the adjustment on October 14, 2026.
The Official 2027 COLA Is 3.6%
SSA’s official 3.6% landed at the top of the summer projections, which ran from 3.5% (AARP) to 3.6% (The Senior Citizens League). The increase starts with benefits payable in January 2027. Supplemental Security Income recipients get it in the payment dated December 31, 2026.
| Measure | 2026 | 2027 |
|---|---|---|
| COLA | 2.8% | 3.6% |
| Average retired-worker benefit, monthly | $2,071 | $2,170 |
| Average retired-worker benefit, annual | $24,852 | $26,040 |
| Earnings test limit (under full retirement age all year) | $24,480 | $25,560 |
| Maximum taxable earnings | $184,500 | $192,300 |
| Announced | October 24, 2025 | October 14, 2026 |
Sources: the SSA 2026 COLA fact sheet and the SSA 2027 COLA fact sheet. Average benefits are SSA’s post-COLA estimates for January of each year.
Part of Your Benefit Is Always Tax-Free, and Below the Base Amount All of It Is
The IRS never taxes more than 85% of a Social Security benefit, so at least 15% is always tax-free. Below the base amount for your filing status, none of the benefit is taxable.
The test runs on a figure called combined income. That is not your benefit and not your adjusted gross income. It is a specific calculation:
Combined income = your other income + your tax-exempt interest + one-half of your Social Security benefits
Compare that total to the thresholds for your filing status
| Your combined income | Single or head of household | Married filing jointly | Portion of the benefit that is taxable |
|---|---|---|---|
| Below the base amount | Under $25,000 | Under $32,000 | None |
| Between the two amounts | $25,000 to $33,999 | $32,000 to $43,999 | Up to 50% |
| Above the upper amount | $34,000 or more | $44,000 or more | Up to 85% |
Source: IRS Publication 915 and the IRS guidance on Social Security income. These thresholds have never been adjusted for inflation.
Your Other Income Decides Whether the Benefit Is Taxed at All
Both cases below use the official 2026 average benefit of $24,852 a year for a single filer living abroad, the benefit that goes on a 2026 return. The only thing that changes is the pension.
With a $12,000 pension, nothing is taxable
Half your benefit is $12,426. Add the pension, and your combined income is $24,426, which is below the $25,000 base amount. None of your Social Security is taxable.
In 2027, the 3.6% raise alone moves the $12,000 pension case just over the line. At the new $26,040 average, half the benefit is $13,020, so the same $12,000 pension puts combined income at $25,020. That is $20 over the base amount, which makes $10 of the benefit taxable.
With an $18,000 pension, a small slice is taxable
Half your benefit is still $12,426, so your combined income is $30,426. That sits in the middle band, where the taxable amount is the lesser of half your benefits or half the amount above the threshold. Half of $5,426 is $2,713, so $2,713 of your benefit becomes taxable income.
There is also a newer deduction working in your favor. For tax years 2025 through 2028, anyone who reaches age 65 by the last day of the year may claim an additional $6,000 deduction, or $12,000 for a married couple where both spouses qualify. It phases out above $75,000 of modified adjusted gross income, or $150,000 filing jointly, and it is claimed on Schedule 1-A, whether or not you itemize. In the second case above, that $6,000 deduction is more than double the $2,713 that became taxable.
The Foreign Earned Income Exclusion Cannot Shelter Social Security
A lot of people assume the exclusion covers this. It does not. The Foreign Earned Income Exclusion covers earned income only, meaning wages and self-employment income for work you performed abroad. Social Security is unearned income, so the exclusion cannot shelter a dollar of it, regardless of how long you have lived overseas.
The Foreign Tax Credit usually helps instead, but only where your country of residence taxes the benefit, because a credit needs foreign tax to offset. If your treaty exempts the benefit locally, there is no foreign tax and no credit.
Your Treaty Decides Whether Your Country of Residence Taxes It Too
Most U.S. tax treaties contain a saving clause, which lets the United States tax its own citizens as though the treaty did not exist. That is why a U.S. citizen abroad still reports the benefit on Form 1040, or Form 1040-SR, if 65 or older.
The U.S.-U.K. treaty is the clearest exception. Article 17(3) says social security paid by one country to a resident of the other is taxable only in the country of residence, and Article 1(5)(a) removes that paragraph from the saving clause. A U.S. citizen living in the U.K., therefore, has U.S. Social Security taxed by the U.K. instead of the United States. That comes from the specific treaty text and does not carry over elsewhere.
Other retirement destinations differ, and some assign taxing rights to the paying country instead. Read the article that applies to you in the IRS treaty documents. One clarification: a totalization agreement governs contributions and benefit eligibility, not income tax on benefits already being paid.
What This Means for You
How much this matters depends on where your income comes from.
- Living mainly on Social Security: the raise itself does not create a tax bill. Half of the $24,852 average benefit is $12,426, so with little or no other income, your combined income stays under the $25,000 base amount, and none of the benefit is taxable.
- Drawing on a pension, rental income, or investments too: your COLA is fixed, but the timing of withdrawals and any Roth conversions is not, and those are what move your combined income.
- Still working abroad while collecting benefits: the retirement earnings test limit is $24,480 for 2026 and $25,560 for 2027 if you are under full retirement age for the whole year, and you should let SSA know if you are working outside the United States. Whether you also pay U.S. Social Security tax on those earnings depends mainly on whether you work for a U.S. employer, a foreign employer, or yourself.
- Comparing destinations before a move: local Social Security treatment varies far more than COLA does. Our guides to states that do not tax retirement income and tax-friendly retirement countries cover both sides.
Steps to Take Now
- Calculate your combined income: Add your other income, your tax-exempt interest, and half of your 2027 benefit, which is your 2026 benefit plus 3.6%.
- Compare that total to your thresholds: $25,000 and $34,000 if single, or $32,000 and $44,000 if filing jointly. If you land below the first number, you owe nothing on the benefit.
- Check whether the senior deduction applies: If you reach 65 by December 31 and your modified adjusted gross income is under $75,000, or $150,000 filing jointly, the extra $6,000 per qualifying spouse sits on top of your standard deduction.
- Adjust withholding or estimated payments only if you are crossing a threshold: Form W-4V lets you request voluntary withholding from the benefit itself.
- Check your COLA notice for your exact new amount: It appears in the ‘My Social Security’ Message Center starting in late November 2026, up to three weeks before paper notices go out in December, so you do not have to wait for international mail.
Our team runs this calculation for retirees abroad every filing season, including the treaty position.
Pension, Rental, Investments, and Social Security
Frequently Asked Questions about Social Security COLA
Yes. The cost-of-living adjustment applies to every beneficiary regardless of where they live, and it is applied automatically. Your gross benefit rises by the same 3.6% for 2027 as someone living in the United States.
For U.S. citizens and green card holders, yes, under the same rules that apply at home. None of the benefits is taxable if your combined income is below $25,000 filing single or $32,000 filing jointly. Above those figures, up to 50% is taxable, rising to a maximum of 85%. Your treaty may instead shift taxing rights to your country of residence.
No. The exclusion covers earned income from work performed abroad. Social Security is unearned income and falls entirely outside it. The Foreign Tax Credit is the more relevant relief, but only where your country of residence taxes the benefit.
The Social Security Administration announced the 3.6% COLA on October 14, 2026. It applies to benefits payable in January 2027, and SSI recipients receive it in the payment dated December 31, 2026.
No, not by itself. Only part of your benefit is ever taxable, so a COLA moves the number far less than people expect. The thresholds are not indexed to inflation, so repeated COLAs can gradually make more of the benefit taxable over time, and the $6,000 senior deduction available through 2028 offsets a meaningful share of that for anyone 65 or older under the income limits.
The information in this article is for general informational purposes only and does not constitute tax, legal, or financial advice. The 2027 cost-of-living adjustment and average benefit figures cited here come from the Social Security Administration’s October 14, 2026 announcement, and your own new benefit amount appears on your COLA notice.
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