The $25,000 Social Security Threshold More Retirees Are Likely to Cross in 2027
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Many seniors today rely heavily on their Social Security benefits for retirement income. In fact, some retirees don’t have access to any income outside of those monthly checks.
People in that situation often get to keep their Social Security benefits in full. But once additional income is introduced, federal taxes on benefits can apply.
In 2027, more seniors may owe taxes on their Social Security checks. Here’s why.
A generous COLA could push more retirees over the threshold
Whether Social Security benefits are subject to taxes or not depends on provisional income. Provisional income is calculated as the total of adjusted gross income, tax-exempt interest income, and 50% of annual Social Security benefits.
The problem is that the thresholds at which taxes apply are quite low. For single filers, a provisional income of $25,000 or more subjects benefits to tax. For married couples filing jointly, taxes apply at a provisional income of $32,000.
The reason more seniors might owe taxes on their Social Security checks in 2027 is simple. Since benefits themselves are part of the formula, and benefits are going up significantly in 2027, more people might find themselves with a provisional income of $25,000 or more — even with the current $6,000 senior tax deduction from the One Big Beautiful Bill Act still available.
In 2027, Social Security benefits will receive a 3.6% COLA. That’s the largest raise to arrive in years.
Of course, a 3.6% COLA is a mixed bag for a few reasons. First, a raise that large comes at the expense of soaring inflation.
But also, a large COLA could push more seniors’ provisional income to the point where taxes on Social Security benefits start to apply. So what retirees gain in the form of a generous boost, they might lose to taxes.
A dated rule that exists for a reason
Part of the reason so many seniors risk being taxed on Social Security at such low provisional income levels is that those thresholds have not changed in decades. But that’s intentional.
Social Security needs revenue to operate. And its main revenue stream, payroll taxes, is shrinking due to a smaller labor force.
Social Security also collects revenue through taxes on benefits. If lawmakers vote to raise the provisional income thresholds, fewer seniors might have to pay taxes on their Social Security checks. But lower tax revenue hurts Social Security, which is why the provisional income thresholds are unlikely to budge anytime soon.
As it is, Social Security is facing the possibility of sweeping 22% cuts as early as late 2032. A near-term change that strips the program of revenue could move up that timeline, worsening the broader situation.
For this reason, it’s important to know what triggers taxes on Social Security benefits and to prepare accordingly. Lawmakers are unlikely to give seniors more leeway to collect benefits without paying those taxes, so planning for them is the next best option. That could mean sitting down with a tax professional or reading up on ways to minimize your tax burden on a whole.
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Maurie Backman has more than a decade of experience writing about financial topics, including retirement, investing, Social Security, and real estate. Her work has appeared on sites that include The Motley Fool, USA Today, U.S. News & World Report, The Washington Post, and Kiplinger.
Prior to becoming a full-time financial writer, Maurie worked in the financial industry trading distressed debt. She then changed course and spent a few years designing electronic toys. After a stint in content marketing and UX, she shifted back into writing and has since covered everything from the housing market to estate planning to Medicare.
When she's not busy writing, Maurie can be found hiking, walking her dogs, driving her kids to their various sports practices and games, and curling up with a good book. She cooks on occasion and bakes way too often.
