The Social Security Administration on Oct. 24 announced a 2.8% cost-of-living adjustment for 2026 and a higher ceiling on wages subject to Social Security tax. The wage base rises to $184,500 from $176,100, which means salaried professionals, executives and business owners who earn above the cap will see Social Security withholding run longer into the year. Retirees, meanwhile, get a benefit increase that is larger than last year's 2.5%.
What changed
According to The Tax Adviser's report on the announcement, the 6.2% Social Security portion of payroll tax, formally the old-age, survivors and disability insurance tax, will apply to the first $184,500 of wages in 2026. An employee earning at or above that level will pay $11,439, and the employer will pay the same amount, an increase of $521 for each party.
The Medicare portion is unchanged at 1.45% each for employees and employers, with no wage cap. Self-employed individuals continue to pay the combined 12.4% Social Security rate and 2.9% Medicare rate on net self-employment earnings.
On the benefit side:
- The COLA of 2.8% applies to Social Security and Supplemental Security Income payments starting in January 2026.
- The maximum monthly benefit for a worker retiring at full retirement age rises to $4,152 from $4,018.
- Beneficiaries reaching full retirement age in 2026 can earn $65,160 before $1 of benefits is withheld for every $3 above the limit, up from $62,160.
- Younger beneficiaries can earn $24,480 before $1 is withheld for every $2 above the limit, up from $23,400.
Who is affected
Any worker with 2026 wages above $176,100 pays more Social Security tax next year. The increase is largest for those at or above the new $184,500 cap, and it lands on both sides of the payroll. Owners of S corporations who pay themselves salaries above the cap bear both halves, and sole proprietors pay the full 12.4% on the extra earnings.
Retirees with substantial other income are affected differently. The Social Security Administration says benefits become subject to federal income tax when combined income, defined as half of benefits plus other income, exceeds $25,000 for individual filers or $32,000 for joint filers. Those thresholds are not indexed, so a larger COLA pushes a slightly bigger share of benefits past them for households with pensions, IRA distributions or investment income.
The after-tax math
| Maximum Social Security tax | 2025 | 2026 | Change |
|---|---|---|---|
| Employee, 6.2% of wage base | $10,918 | $11,439 | +$521 |
| Employer, 6.2% of wage base | $10,918 | $11,439 | +$521 |
| Self-employed, 12.4% of wage base | $21,836 | $22,878 | +$1,042 |
Example: a married couple each earning $300,000 in salary will pay a combined $1,042 more in employee Social Security tax in 2026, and their employers will pay the same. Because both earners stop owing the 6.2% tax once they pass $184,500, their paychecks will still rise late in the year when withholding for that tax ends; it simply happens a little later than in 2025.
Retiree example: a couple collecting $70,000 a year in combined Social Security benefits would see about $1,960 more in 2026 from the 2.8% COLA. With pension and investment income well above the $32,000 combined-income threshold, much of that increase is likely to be taxable, so the after-tax gain is smaller than the headline raise.
Moves to discuss with your advisor
- Rechecking 2026 withholding and cash-flow timing for high earners whose Social Security withholding will now stop later in the year.
- For S corporation owners, reviewing how salary levels interact with the higher wage base, a question to take up with a CPA.
- For those still working while collecting benefits before full retirement age, measuring expected wages against the new earnings-test limits.
- For retirees, modeling how the COLA and other income affect the taxable share of benefits and any Medicare premium surcharges.
What to watch
Medicare Part B premiums and income-related surcharges for 2026 are announced separately and can absorb part of the COLA for higher-income retirees. Watch for updated withholding guidance from employers and for 2026 estimated tax planning that reflects the higher self-employment tax base.
Sources
- First reported Social Security wage base and COLA announced for 2026 — The Tax Adviser (AICPA)
- Income Taxes and Your Social Security Benefit — Social Security Administration
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
