In order to study the thermal stability of coated carbonyl iron powder (CIP) and its influence on magnetic properties, carbonyl iron powder was coated with a silica layer and then annealed in an air atmosphere at elevated temperatures. Transmission electron microscopy (TEM) analysis and Fourier transform infrared spectroscopy confirmed the existence of a silicon dioxide layer with a thickness of approximately 80~100 nm. Compared with uncoated CIP, the silicon-coated CIP still maintained a higher absorption performance after annealing, and the calculated impedance matching value Z only slightly decreased. It is worth noting that when the annealing temperature reached 300 °C, coercivity (Hc) increased, and the real and imaginary parts of the permeability decreased, which means that the silicon dioxide layer began to lose its effectiveness. On the contrary, the significant decrease in microwave absorption ability and impedance matching value Z of uncoated CIP after annealing were mainly because the newly formed oxide on the interface became the active polarization center, leading to an abnormal increase in permittivity. In terms of the incremental mass ratio after annealing, 2% was a tipping point for permeability reduction.