Social Security Bill Boosts COLA Accuracy, But Taxes Income Above the Cap Starting 2026

This bill, titled the “Protecting and Preserving Social Security Act,” is a two-part blueprint that tries to shore up the program’s funding while changing how benefits are calculated. The big takeaway is that it changes who pays into the system and how much current beneficiaries receive, starting with some serious changes in 2026.

The New Math for Seniors: CPI-E

For anyone currently receiving or nearing Social Security, the most immediate change is how Cost-of-Living Adjustments (COLAs) are figured out. Right now, the COLA is based on the general Consumer Price Index (CPI), which tracks inflation for everyone. This bill mandates the creation and use of a new measure: the Consumer Price Index for Elderly Consumers (CPI-E) (Sec. 101). The idea is that people aged 62 and older spend their money differently—more on healthcare, less on tech gadgets—and their COLA should reflect that reality.

Starting with COLA calculations after the law takes effect, the government must use this new CPI-E (Sec. 102). If the costs seniors actually face are rising faster than the general CPI, this could mean higher annual checks. Crucially, the bill also includes a safety net: if your Social Security benefit goes up because of this new calculation, that increase cannot be counted against you when determining eligibility or benefits for Supplemental Security Income (SSI) or Medicaid. This prevents a classic “benefit cliff” where a small COLA increase causes a low-income senior to lose vital healthcare or housing assistance.

The 2026 Tax Shift: Hitting Income Above the Cap

The second title of the bill is where the revenue—and the new cost—comes in, specifically targeting high-income earners starting in 2026. Currently, you only pay Social Security payroll taxes (FICA) on income up to a certain annual limit (the contribution and benefit base). Everything earned above that cap is tax-free for Social Security purposes.

Starting in 2026, this bill requires that a specific “applicable percentage” of wages and self-employment income above the current contribution base will also be subject to Social Security taxation (Sec. 201). If you’re an employee or a small business owner making significantly more than the current cap, this is essentially a new payroll tax on a portion of your income that was previously exempt. Your employer will also face higher payroll taxes on those wages.

A Small Benefit for High Earners

While the new tax is the headline for high earners, the bill does offer a slight adjustment on the benefit side. Currently, any income earned above the cap doesn't count toward your future Social Security benefit calculation. This bill changes that: it creates a “Surplus Average Indexed Monthly Earnings” (Surplus AIME) calculation (Sec. 202).

If you pay the new tax on income above the cap, you get a small credit in your benefit formula. Specifically, 3% of your Surplus AIME will be added to your Primary Insurance Amount (PIA), which determines your monthly check. For example, if you consistently earn above the cap, you’ll pay more in taxes now, but you will also receive a slightly higher Social Security benefit when you retire than you would have under the old rules. This change applies to anyone becoming eligible for benefits after 2025.