Two important updates could affect retirement planning for federal employees: increasing payroll and earnings-limit thresholds, and upcoming cost-of-living adjustments (COLAs) to your annuity.
Social Security & Payroll Tax Changes
Starting in 2026, the Social Security payroll tax for most federal employees will apply to earnings up to $184,500, up from the current $176,100. If you’re in the Federal Employees Retirement System (FERS), once your pay goes above that threshold, you will no longer pay the 6.2% Social Security tax, only your normal retirement contribution (0.8%, 3.1% or 4.4% depending on hire date). Additionally, the earnings test for Social Security beneficiaries aged 62 through full retirement age will rise from $23,400 to $24,480. For those in the year they attain full retirement age, the earnings cap will increase from $62,160 to $65,160.
Retirement Annuity COLAs
For January, a COLA of 2.8% has been set for CSRS annuitants, and 2.0% for eligible FERS annuitants. These cost-of-living adjustments are based on inflation tracking through September. For FERS retirees under age 62 (unless retired for disability or under special provisions), COLAs are delayed until age 62, and even when they apply, there’s a cap that may mean the increase is 1 percentage point less than the inflation count. Also, Social Security COLAs will rise by 2.8%, which is of particular interest if you’re drawing Social Security or will in retirement.
What This Means for You
- If you’re a FERS employee, keep an eye on your earnings relative to the $184,500 threshold and know that your payroll tax burden will change once you hit it.
- If you’re nearing age 62 or already drawing a federal annuity, understand your COLA eligibility and timing.
- While modest percentage changes like a 2.0% or 2.8% COLA can matter in the long run, they often don’t keep pace with increasing health-insurance premiums and inflation.
What to Do Now
Take a few minutes to check your service history, earnings trajectory, and retirement-eligibility milestones. If you’re unsure how these tax thresholds, COLAs, and benefit rules apply to you, reach out to a knowledgeable Federal Retirement Consultant (FRC®) who can help you make informed decisions and ensure you maximize your retirement benefits.
