"The thresholds triggering taxation have remained frozen since the early 1990s, creating an inflation trap for retirees. Single filers face taxation on up to 50% of benefits once provisional income exceeds $25,000, rising to 85% above $34,000. This bracket creep means more retirees fall into taxation each year as COLA adjustments push them over these outdated thresholds, even though their real purchasing power hasn't increased."
"The January 2026 COLA increase brought the average monthly benefit to $2,071, adding roughly $672 annually. However, this creates a taxation trap because half of every COLA dollar counts toward provisional income. Retirees who were previously just below taxation thresholds now find themselves paying federal taxes on benefits they once received tax-free, with each year's adjustment making the next year's situation more precarious."
A 2.8% Social Security COLA for 2026 raised the average monthly benefit to $2,071, about $672 annually. Whether benefits become taxable depends on provisional income: adjusted gross income plus tax-exempt interest plus half of Social Security benefits. Taxation thresholds have been frozen since the early 1990s, causing bracket creep: single filers face up to 50% taxation above $25,000 and up to 85% above $34,000. Half of any COLA dollar is included in provisional income, so COLA increases can push recipients into taxable ranges. Investment interest, such as bond yields around 4.09%, counts fully toward provisional income and can further trigger taxation, reducing retirees' purchasing power and complicating tax planning.
Read at 24/7 Wall St.
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