In 2026, the average Social Security benefit in the United States is set to rise to about $2,071 per month, roughly $24,850 annually, following a 2.8 % cost‑of‑living adjustment aimed at offsetting inflation.
While the increase offers modest financial relief for around 71 million beneficiaries, many retirees may find that a large portion of their benefit winds up being taxed, blunting the impact of the raise.
Why will a huge amount from this be taxed?
The primary reason lies in outdated federal tax thresholds established in 1983 that determine when Social Security benefits become taxable. Under current US tax law, a retiree’s “combined income”, defined as adjusted gross income (AGI) + non‑taxable interest + 50 % of Social Security benefits, must exceed certain fixed limits before the Internal Revenue Service (IRS) taxes any portion of the benefit.
For individual filers, taxes begin above $25,000, with up to 85 % of benefits potentially taxable once income tops $34,000, according to official government data.
For couples filing jointly, the corresponding thresholds are $32,000 and $44,000. These thresholds have never been adjusted for inflation, meaning that as benefits rise and retirees draw income from savings, dividends or part‑time work, more households are pushed into taxable territory.
In practical terms, even modest investment income can trigger taxation. Conservative portfolios generating $15,000–$20,000 a year in dividends may push retirees’ combined income over the taxable limits, resulting in unexpected federal tax bills on benefits that were once largely tax‑free.
When one claims Social Security benefits determines their monthly payments
Another important retirement decision that affects lifetime income is when to begin claiming Social Security. Workers can start claiming benefits at age 62, but doing so permanently reduces monthly payments by about 30 % compared with waiting until the full retirement age, which for most new retirees in 2026 is 67, according to NCOA.org
Delaying claims until age 70 boosts monthly payments by roughly 24 % above the full‑retirement‑age amount, increasing income but also raising the likelihood of hitting taxable thresholds sooner.
Additionally, retirees who continue working before reaching full retirement age face earnings tests that can temporarily withhold benefits if annual earnings exceed established limits.
Although withheld amounts are credited back once full retirement age is reached, the rules can disrupt cash flow in the short term.