Social Security 2027 change could cost you $967: What to know about ‘maximum taxable earnings’ update

The Social Security Administration (SSA) recently announced an increase in the annual cost-of-living adjustment (COLA) for 2027, which will be 3.6% - the highest figure in four years. However, hidden within this news is a potential cost for high earners. The SSA is raising the ceiling on "maximum taxable earnings" subject to Social Security tax from $184,500 in 2026 to $192,300 in 2027. This means that more income is now exposed to payroll taxes, which could help fund the struggling Social Security trust.

According to a recent Social Security trustees’ report, the retirement trust fund is estimated to run out of money and become insolvent as early as the fourth quarter of 2032. With about 71 million Americans - 54 million retired workers and 9 million of their survivors and dependents - currently receiving monthly Social Security benefits, Robert Laura, a financial planner and founder of the Retirement Coaches Association, warns that the higher earnings cap could have a significant impact on high earners.

Laura suggests that "doubling the cap could bring in an estimated $100 billion or more a year, but at a steep cost to high earners and [equal] impact [to] consumer spending." For someone earning the maximum taxable earnings of $192,300 annually, the update to maximum taxable earnings could cost them as much as an extra $967.20 per year.

Self-employed individuals with the same income could see an additional cost of $967.20 annually. However, earnings above $192,300 are not taxed by Social Security; only a 1.45% Medicare tax still applies.