The Projected 2027 Social Security COLA Is Bigger. Your Tax Bill May Not Be.

Social Security benefits may rise in 2027 if inflation data supports a larger cost-of-living adjustment. Recent estimates have suggested the 2027 COLA could be higher than recent annual increases, with one estimate placing it around 3.6%. The official amount is expected after September inflation data is released.

For Americans living abroad, a larger Social Security payment may be welcome. But it does not automatically mean your U.S. tax bill will increase by the same percentage.

The tax effect depends on your full income picture.

How Social Security Is Taxed in the U.S.

The IRS may tax part of your Social Security benefits depending on your combined income. Some retirees pay no federal tax on Social Security. Others may have up to 50% or 85% of benefits included in taxable income.

A COLA increase may slightly raise total benefits, but whether that changes tax depends on other income sources, deductions, filing status, and foreign tax treaty rules.

Why Expats Need a Broader Review

Americans overseas may have income from several countries. A retired expat may receive:

• U.S. Social Security
• Foreign pension payments
• U.S. IRA or 401(k) withdrawals
• Foreign investment income
• U.S. brokerage income
• Rental income
• Part-time consulting income
• Local government benefits

The COLA increase may be only one part of the overall tax calculation.

Tax Treaties May Affect the Result

Some countries have income tax treaties with the United States that address Social Security or pension income. The result can vary depending on the country, the type of benefit, the taxpayer’s residence, and citizenship.

Some expats may owe tax mainly to the United States. Others may need to report benefits in their country of residence. Still others may need to apply treaty rules or foreign tax credits.

Do not assume that Social Security is taxed the same way in every country.

Medicare Premiums and Other Costs

A larger Social Security benefit may also affect other calculations, including Medicare premiums for some retirees. Income-related monthly adjustment amounts may apply when income exceeds certain thresholds.

Expats should review whether they are enrolled in Medicare, whether they maintain U.S. coverage, and how retirement income affects premiums.

Foreign Bank Accounts Still Matter

If Social Security is deposited into a foreign bank account, the account may need to be reviewed for FBAR and Form 8938 reporting. The benefit itself is not what triggers FBAR. The account balance does.

A retiree who keeps savings in foreign accounts may need to report those accounts even if the money originated from U.S. Social Security.

State Taxes After Moving Abroad

Some retirees also forget about state tax residency. Moving abroad does not always end state filing duties.

A former state may look at:

• Domicile
• Driver’s license
• Voter registration
• Property ownership
• Mailing address
• Family ties
• Return visits
• Financial accounts

A Social Security COLA may be less important than whether your former state still considers you a resident.

Planning Tips for Retirees Abroad

Before 2027, expat retirees should review:

• Expected Social Security benefits
• Pension income
• IRA and 401(k) withdrawals
• Foreign tax obligations
• Treaty treatment
• Foreign tax credits
• FBAR and Form 8938
• State residency
• Estimated taxes

The goal is to understand your total retirement income, not just one benefit increase.

Get Help Reviewing Your Retirement Tax Picture

A higher COLA can be good news, but retirees abroad should still review how U.S. and foreign tax systems interact.

Expatriate Tax Returns helps Americans abroad prepare U.S. tax returns, report foreign pensions and accounts, evaluate tax treaty issues, and stay compliant while living overseas.