Retirees Could Face a Surprise Social Security Tax Hit in 2027

Retirees have a lot of things to spend their money on, from travel and spoiling the grandkids to covering the rising cost of medical care as they age.

Unfortunately, taxes are likely to remain a stubborn line item in that budget. The IRS does not stop taxing you just because you have retired, and many seniors must plan for both federal and state obligations on top of every other expense in retirement.

That tax burden may grow for a good number of retirees on Social Security, who could face an unwelcome surprise when they file in 2027. Here is why seniors need to be prepared for the IRS to claim a bigger share of their benefits in the coming year.

Retirees could be on track for an unpleasant tax surprise

Retirees collecting Social Security benefits could end up blindsided by their 2027 IRS bills for a straightforward reason. Benefits are on track for a meaningful increase thanks to the annual cost-of-living adjustment (COLA), but the income thresholds at which taxes kick in are frozen in place and will not budge.

The official 2027 COLA will not be announced until October 14, when the Social Security Administration releases the final number. In the meantime, three independent forecasters have each revised their projections downward since earlier this year as inflation moderated. The Senior Citizens League now projects the 2027 COLA at 3.6%, down from its earlier estimate of 3.8% based on May data. Independent analyst Mary Johnson puts her latest estimate at 3.4%, while AARP’s analysis of current CPI-W data points to 3.5%. All three figures remain subject to revision as the government reports August and September inflation readings. The current average monthly benefit for retired workers is $2,084, meaning a 3.6% raise would add roughly $75 to monthly checks.

A meaningful raise is welcome news for seniors who have watched their purchasing power erode. The Senior Citizens League’s 2026 Loss of Buying Power report found that Social Security benefits have lost roughly 13.7% of their buying power since 2016. But a larger check also puts more retirees at risk of owing federal tax on their benefits for the first time, or of seeing an existing tax bill climb. That is because the thresholds at which benefits become taxable are not indexed to inflation and do not rise just because benefits go higher.

Here’s why you may owe the IRS more money in 2027

Social Security benefits were entirely exempt from federal income tax for the first four decades of the program. That changed with the Social Security Amendments of 1983, which for the first time allowed the IRS to include a portion of benefits in taxable income. A second, higher layer of taxation followed in the Omnibus Budget Reconciliation Act of 1993.

When the 1983 law was passed, only about 10% of beneficiary families were affected, because the income thresholds were set high relative to what most retirees earned at the time. The 1993 law added an upper tier but left those same frozen thresholds intact for the lower tier.

Under the rules in effect today, a single filer with provisional income between $25,000 and $34,000 can owe tax on up to 50% of benefits. Above $34,000, up to 85% of benefits becomes taxable. For married couples filing jointly, the equivalent thresholds are $32,000 and $44,000. Provisional income is calculated as half of all Social Security benefits, plus all taxable income, plus certain non-taxable income such as tax-exempt bond interest.

Those thresholds have never been adjusted for inflation since they were set more than 40 years ago. As wages and annual cost-of-living adjustments have pushed retiree incomes steadily higher, the share of beneficiaries crossing those lines has climbed sharply. Roughly half of Social Security recipients now owe at least some federal tax on their benefits, compared with just 10% when the law took effect. A projected COLA of 3.4% to 3.6% in 2027 would push more retirees across those lines for the first time, and pull others who already pay taxes into a higher taxable share of benefits.

A partial offset worth knowing about

One recent development could soften the tax impact for some retirees. The One Big Beautiful Bill, signed into law in July 2025, created a temporary bonus deduction of $6,000 per person for taxpayers age 65 and older, available for tax years 2025 through 2028. Married couples where both spouses qualify can claim up to $12,000 combined. The deduction phases out for those with modified adjusted gross income above $75,000 for single filers, or above $150,000 for joint filers. It can be claimed on top of the standard deduction, not just by those who itemize.

The new deduction does not change the Social Security taxation thresholds themselves, but for lower-income retirees who rely heavily on benefits, it can reduce overall taxable income enough to offset some or all of the COLA-driven tax increase. Retirees near the provisional income thresholds should factor this deduction into their planning before drawing conclusions about what they will owe in 2027.

Editor’s note: COLA estimates have been updated to reflect August 2026 projections showing TSCL at 3.6%, Mary Johnson at 3.4%, and AARP at 3.5%, all revised down from earlier forecasts as July CPI data showed moderating inflation. The average monthly benefit figure has been updated to $2,084 per the SSA’s June 2026 Monthly Statistical Snapshot, and the Senior Citizens League’s buying power loss figure has been corrected to 13.7% since 2016, per the group’s 2026 Loss of Buying Power report.

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