Federal retirees face new COLAs, premiums and earnings limits in 2026

It’s a new year, and there are new benefit amounts that take effect at the beginning of each year as well as basic pay adjustments for federal workers under the General Schedule and cost of living adjustments for retirees. There are many federal employees who have retired since Sept. 30, who have not had their retirement claims finalized, and they have been wondering about what changes they need to be aware of in the new year. For most feds, there are changes in the premiums paid for Federal Employees Health Benefits. For retirees who are working after retirement, there are also new earnings limits applied to their FERS Special Retirement Supplement and Social Security benefits.

Here is a summary of changes that are or will be taking place this year:

Pay and Retirement Benefit Adjustments

Federal employees technically do not receive cost-of-living adjustments, but instead they receive congressionally approved and often politically motivated annual pay adjustments. According to the Office of Personnel Management, the GS base pay schedule is usually adjusted annually each January with an across-the-board pay increase based on nationwide changes in the cost of wages and salaries of private industry workers. Most GS employees are also entitled to locality pay, which is a geographic-based percentage rate that reflects pay levels for nonfederal workers in certain geographic areas as determined by surveys conducted by the U.S. Bureau of Labor Statistics.

In a memo dated Dec. 18, 2025, from Scott Kupor, OPM director, it was announced that the president has signed an executive order to implement the January 2026 pay adjustments. Pursuant to the president’s alternative plan issued under 5 U.S.C. 5303(b) and 5304a on Aug. 28, 2025, the executive order authorizes a 1.0% across-the-board increase for statutory pay systems and provides that locality percentages will remain at 2025 levels. OPM has most of the 2026 pay charts available on its website. If you were an employee on the first day of the new leave year (Jan. 11, 2026, for most federal employees), your salary rate would have reflected the increase starting on this date.

Lump Sum Annual Leave Payment

If you retired earlier than Jan. 11, 2026, you may have had some of your lump sum annual leave payment paid at the new salary rate. Generally, a lump-sum payment for annual leave will equal the pay the employee would have received had they remained employed until the expiration of the period covered by the annual leave. The additional portion reflecting the 2026 pay increase may come at a later date than your initial lump sum leave payout. A lump sum payment is paid for unused annual leave only and cannot be paid for other types of leave, such as sick leave, military leave or home leave. Read more about the lump sum payment for unused annual leave on a fact sheet available at https://www.opm.gov/policy-data-oversight/pay-leave/leave-administration/fact-sheets/lump-sum-payments-for-annual-leave/

Here are some things OPM wants you to know about this payment:

• Payment may take several months due to agency processing and leave account audits.

• Employees who separate from federal service should keep a copy of their final leave and earnings statement (LES) showing their leave balances and request a copy of their SF-1150, Record of Leave Data upon Separation or Transfer, for their records.

• Contact your former agency’s human resources office with any questions about your lump-sum payment.

• If you return to federal service before the end of your lump-sum leave period, expect to repay part of the payment and have those hours recredited to your leave balance.

Retirement Cost-of-Living Adjustments (COLA)

On the other hand, annuitants (this includes retired federal employees and entitled surviving family members of deceased federal employees and retirees) received a cost-of-living adjustment effective on Dec. 1, 2025, which should have been reflected in their benefit payable on Jan. 2, 2026. If you retired on Dec. 31, 2025, with your first annuity payment due on Feb. 1 (for the month of January 2026), you will need to wait until next January as your first COLA will be paid on Jan. 4, 2027 (the first business day in January 2027).

Annuitants who retired earlier in 2025 will receive a prorated COLA during their first year on the annuity rolls. The proration is based on the number of months between the start date of the annuity and the effective date of the COLA. For example, if a CSRS employee had retired on Dec. 31, 2024, they would have received 11/12 of the 2.8% COLA that was effective on Dec. 1, 2025, or a 2.56% increase, on Jan. 2, 2026.

FERS cost-of-living adjustments are not provided until age 62, except for disability, survivor benefits and other “special provision” retirements (i.e., law enforcement, firefighters, etc.). FERS disability retirees get the adjustment, except when they are receiving a disability annuity based on 60% of their high-3 average salary during the first 12 months of receiving disability retirement. Also, under FERS, if retirees have a CSRS component, the component is subject to the CSRS COLA calculation. FERS survivors receive the FERS increase on their entire annuity, even where there may be a CSRS component. A FERS employee who was eligible for a COLA immediately upon retirement would also receive a prorated COLA as described in the previous paragraph.

COLA increases for FERS annuitants eligible before age 62 only apply to the retiree’s basic annuity (not the annuity supplement). For spousal survivor annuitants, the COLA applies to both the basic survivor annuity and the FERS annuity supplement (payable to survivors of retirees who are under age 60). The FERS COLA payable beginning with the December 2025 annuity payment is only 2.0% due to the FERS rules that provide a “diet” COLA. If the rate of inflation is between 2% and 3%, FERS retirement benefits only receive a 2% increase.

To get the full COLA, a retiree’s annuity or a survivor’s annuity must have begun no later than Dec. 31, 2024. If not, the increase is prorated under both CSRS and FERS retirement plans. Prorated accounts receive one-twelfth of the increase each month they receive benefits. For example, if the benefit commenced between Nov. 1 and Nov. 30, 2025, the prorated COLA would be one-twelfth of the full COLA.

Social Security COLA

The 2.8% cost-of-living adjustment (COLA) will begin with benefits payable to nearly 71 million Social Security beneficiaries in January 2026.

FERS Special Retirement Supplement (SRS) Earnings Limit

FERS retirees receiving an annuity supplement are subject to an earnings test. In the spring, around May, OPM sends an annual survey to annuitants who receive the SRS, so they can report their earnings from the previous year. The annuity supplement will be reduced effective with the July 2026 FERS annuity payment (payable on Aug. 1) if the earnings were more than the limit established for the prior year by the Social Security Administration. The reduction is $1 for every $2 earned over the minimum level.

Social Security Earnings Limit

Work earnings before the full retirement age (FRA) (67 if you were born in 1960 or later) can affect your Social Security benefit payment. If you said you’d keep working when you applied, Social Security will send you a form each year to estimate your earnings. If you’re younger than your FRA during all of 2026, Social Security must deduct $1 from your benefits for each $2 you earn above $24,480 (2026 earnings limit). If you reach full retirement age in 2026, they will deduct $1 from your benefits for every $3 you earn above $65,160 until the month you reach full retirement age. If you will have earnings over the limit, notify Social Security immediately to avoid a large overpayment of your Social Security benefits. If you receive too much in benefits, Social Security will send you information regarding the options for repaying the amount owed.

Maximum Taxable Wage for Social Security Old Age Survivors and Disability Insurance (OASDI; aka FICA)

The OASDI tax rate for wages paid in 2026 is set by statute at 6.2% for employees and employers, each. If you earn wages equal to or larger than $184,500, then you would contribute $11,439.00 to the OASDI program in 2026, and your employer would contribute the same amount. The OASDI tax rate for self-employment income in 2026 is 12.4%.

Medicare

If you plan to enroll in Medicare Part B and you missed your Initial Enrollment Period at age 65, there is a General Enrollment Period every year between Jan. 1 and March 31. Part B coverage will start the month after you sign up. You might have to pay a permanent late enrollment penalty if you don’t qualify for a Special Enrollment Period. Medicare premium for Part B is increased 10% for each full 12 months during which you could have been, but was not, enrolled.

The standard monthly premium for Medicare Part B enrollees will be $202.90 for 2026, an increase of $17.90 from 2025. You’ll pay a higher premium for Part B if your modified adjusted gross income, as reported on your IRS tax return from 2024, was more than $106,000 if you file an individual tax return or more than $212,000 if you are married and file a joint tax return. Most people pay the standard rate; however, the Income Related Monthly Adjustment Amount (IRMAA) is an extra charge added to the premium for higher earners.

Federal Employees Health Benefits

The new rates for your FEHB plan take effect on Jan. 11, 2026, for most federal employees. However, the rates for retirees and Postal employees took effect on Jan. 1 and will be adjusted in the CSRS or FERS benefit that you receive on Feb. 1 (which is your January annuity payment).

Thrift Savings Plan

Roth in-plan conversions are now available in My Account — Beginning this month, a Roth in-plan conversion option is available in My Account. Roth in-plan conversions allow you to convert money from your traditional (pre-tax) balance to a Roth (after-tax) balance within your TSP account. If you don’t already have a Roth TSP balance, your first conversion will automatically create one.

Before you decide to do a Roth in-plan conversion, it’s important to consider the current and future effects on your taxes. When you convert pre-tax money to Roth, the conversion amount becomes part of your taxable income for the year, which could increase your tax rate. You’ll need to pay taxes on the conversion amount using personal funds from another source, such as a savings account. You cannot use part of the amount you’re converting to pay taxes. It is strongly recommended that you consult a tax advisor before making a Roth in-plan conversion as this action can have a significant impact on your taxes. Once you do a conversion, you cannot reverse it or change it. A tax advisor can help you decide if a conversion makes sense for your situation.

The annual elective deferral limit (i.e., limit on employee contributions) for 2026 is $24,500, and the catch-up contribution limit for employees turning 50 in 2026 or older increased by $500 to $8,000. If you turn 60, 61, 62 or 63, in 2026, the IRS gives you an even higher catch-up limit of $11,250. In the year you turn 64, the limit returns to the regular catch-up amount. These limits apply to your contributions and do not include matching or automatic government contributions. If you’re turning 50 or older and exceed the IRS elective deferral limit, then your contributions will automatically start counting toward the IRS catch-up limit. If you earned more than the IRS income threshold ($150,000 in 2026, unchanged from 2025, adjusted annually for inflation) and your total contributions exceed the elective deferral limit, those additional contributions — catch-up contributions — must be Roth.

In mid-January, the TSP will mail IRS Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to participants who received a withdrawal between Jan. 1 and Dec. 27, 2025, and/or a taxed or foreclosed loan between Jan. 1 and Dec. 31, 202. Withdrawals processed after noon on Dec. 29 are taxable income for 2026. A copy of your 2025 Form 1099-R will also be available in your My Account secure participant mailbox by mid-February. If needed, corrected forms will be issued within three weeks of verifying the correction. It is a good idea to consult a qualified tax advisor or the IRS for questions about filing your taxes.

TSP life expectancy installments will be recalculated according to required updates to the assumptions used to determine those amounts. In early January, the TSP will send notices with more information, including recalculated amounts, to participants receiving life expectancy installments. Notices will go out based on participants’ delivery preferences on file (by mail or online through the secure participant mailbox in My Account).

In early January, the TSP will send RMD calculation notices to separated participants who will be 73 and older in 2026 and to spousal beneficiaries with RMDs due for the 2026 calendar year. Notices will go out based on participants’ delivery preferences on file (by mail or online through the secure participant mailbox in My Account). If you haven’t done so already, the TSP encourages you to add direct deposit information in My Account to receive your money quickly and easily.