Retirees Are Rooting for a Big 2027 COLA. A Large One Means Higher Medicare Premiums and a Bigger Tax Bill

If you’re collecting Social Security, you’re probably hoping for a generous cost-of-living adjustment, or COLA, in 2027. A larger raise could make it easier to keep up with rising expenses.

So far, estimates are pointing to a larger Social Security COLA in 2027 than the 2.8% raise retirees received at the start of 2026. But there’s a catch.

A bigger COLA could trigger higher taxes and costlier Medicare premiums for some Social Security recipients. So it’s important to understand what to expect if a larger COLA comes through in the new year.

A larger monthly benefit could come with backlash

The purpose of Social Security COLAs is to protect retirees’ purchasing power in the face of inflation. A larger COLA may, in theory at least, do a better job of keeping pace with inflation than a smaller one. But for moderate or higher earners, a larger 2027 COLA could have unwanted consequences.

First, depending on your total financial picture, a bigger COLA could push you into a higher tax bracket. It could also leave you on the hook for paying taxes on your Social Security benefits.

If you’re a higher earner, a larger COLA could also have implications for your Medicare premiums. While most Medicare enrollees pay a standard monthly premium for Part B, higher earners can be assessed surcharges known as IRMAAs, or income-related monthly adjustment amounts.

The problem with IRMAAs is that even a slight increase in income could leave you paying a lot more. Currently, for example, single tax-filers don’t face IRMAAs if their income is less than $109,000. But if a COLA pushes your income to $110,500, which is conceivable if you collect a larger Social Security benefit and next year’s raise is generous, that might cause you to be charged more for Part B.

To be clear, we don’t know what next year’s IRMAA income tiers look like yet. The point, however, is that a more generous COLA could leave you paying more for Medicare.

And also, IRMAAs don’t only apply to Part B. They apply to Part D plans, too. So you may feel the pain across several bills.

It’s important to plan ahead

A larger Social Security COLA may be good news for many retirees. But for some people, it could backfire.

It’s important to understand how a larger Social Security raise might bump you into a higher tax bracket or cause you to pay more for Medicare. Once you recognize that, you may be able to work with a financial advisor or tax professional to find ways to offset that hit.

Of course, in some cases, IRMAAs can be unavoidable. But if so, it’s better to know that you might face one so you can be prepared and make changes to your budget if needed.

If you’re right on the cusp of facing IRMAAs now, it’s important to face the reality that you may end up subjected to them next year. But if you plan ahead, you might still be able to do the things you want to do while absorbing that higher cost.

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