PROFIT FROM IT: Social security COLA, wage base adjustment for 2027

Last week, the Social Security Administration (SSA) announced the cost-of-living adjustment (COLA) for 2027 Social Security benefits, as well as the 2027 wage base upon which social security taxes will be paid.

The COLA increase for 2027 will be 3.6 percent. Social Security benefits include Old-Age, Survivors, and Disability Insurance (OASDI), and Supplemental Security Income (SSI). On average, Social Security retirement benefits will increase by $75 per month in 2027 with this COLA increase. This increase will benefit nearly 72 million Social Security beneficiaries. Increased payments will also begin for the about 7.3 million people receiving SSI.

Individuals with personal "my Social Security" accounts can view their COLA notice online starting in late November, up to three weeks earlier than receiving a paper notice in the mail. Account holders can also choose to receive text or email alerts when a new message, including their COLA notice, is available in their personal "my Social Security" account's Message Center.

Individuals who do not have a personal account can create one and enroll in paperless notices by November 18 to see their COLA notice online. To create an account, something I highly recommend as it will make dealing with the SSA much easier, go to www.ssa.gov/myaccount.

Social Security beneficiaries will receive a simplified, one-page COLA notice, which uses plain and personalized language, and provides exact dates and dollar amounts of an individual's new benefit amount and any deductions. Individuals who have not enrolled in paperless notices in "my Social Security" will receive their COLA notice by mail in December.

And speaking of Social Security benefits, what funds those puppies are the payroll taxes paid each year by employees, employers and the self-employed on earned income. Despite popular myth, you weren't paying all those years into a retirement account that was building up for your benefit. We have what is called a pay as you go system, meaning current benefits are funded by current taxes plus any reserve that might be left from previous collections.

Each year, the SSA adjusts the taxable wage base, the amount up to which the 6.2 percent OASDI tax rate is imposed. For 2026, this wage base will be $192,300, an increase from $184,500 this year. At or above the wage base limit, the employee and employer each will pay $11,922.60 in OASDI tax in 2027, up from $11,439 in 2026.

The Medicare hospital insurance tax of 1.45 percent each for employees and employers remains unchanged and has no wage limit. Further, those with earned income exceeding $200,000 ($250,000 for married taxpayers filing jointly and $125,000 for married taxpayers filing separately) continue to pay the additional 0.9 percent Medicare tax when filing their individual tax returns.

As always, self-employed people continue to pay self-employment tax equal to the combined employee and employer Social Security and Medicare tax rates, or 15.3 percent at its highest.

It's worth noting here that if you begin taking SSA benefits before reaching you full retirement age, such as those who opt to start taking them at age 62, and you continue to have earned income, your benefit amount may be reduced for a time.

Beneficiaries younger than full retirement age can earn up to $25,560 in 2027 before benefits are reduced by $1 for every $2 of earnings above the limit, up from $24,480 in 2026.

Individuals who will reach full retirement age in 2027 can earn up to $67,920 before benefits are reduced by $1 for every $3 of earnings above the limit for months before reaching full retirement age, up from $65,160 in 2026.

Lane Keeter, CPA is the Senior Partner of EGP, PLLC, CPAs & Consultants (www.egp.cpa), a full-service financial firm with offices around Arkansas, Managing Partner of EGP's Heber Springs office, and winner of The Sun-Times Reader's Choice Award for Best Accountant.

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