What is COLA?
COLA stands for cost-of-living adjustment and applies to Social Security benefits. Congress enacted COLA legislation as part of the 1972 Social Security Amendments. Starting in 1975, automatic annual COLAs were tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Before that, Social Security benefits increased only when Congress passed special legislation.
COLA ensures that Social Security payments kept pace with inflation so that individuals on fixed incomes do not lose purchasing power over time.
If you are not yet receiving Social Security payments, you can send a Social Security Benefits Letter to request an estimate of your future benefits. If you are ready to apply, completing a Social Security Application Worksheet can help you organize your information before submitting your application. If you already receive benefits but need to update your information (such as your address or marital status), you can send a Social Security Change in Information form to make those updates.
When is the COLA and how much is the increase?
The Social Security Administration (SSA) announces a new COLA each year, typically in the fall, with the increase taking effect in December payments and reflected in benefits issued the following January. The percentage increase varies annually and is based on changes in the CPI-W.
Americans who are receiving Social Security benefits or SSI are set to automatically receive the new benefit amount. If your benefit payment does not reflect a scheduled increase, you can contact the Social Security Administration directly for assistance.
For the latest COLA announcements and benefit details, visit the Social Security Administration COLA page.
As a Social Security beneficiary, how can I be sure to get the COLA?
The COLA is automatic, so no action is required for Social Security beneficiaries to receive their increased benefits.
If you have questions about your federal retirement benefits or Social Security payment amounts, you can speak with a lawyer who handles Social Security matters. A financial advisor may also be able to answer questions about your overall retirement income.
How are my Social Security benefits taxed?
Each year, the Social Security Administration sends a Social Security Benefit Statement (Form SSA-1099) to all recipients. Form SSA-1099 reports the amount of benefits received during the year and helps determine whether any portion of your benefits is taxable. It is important to report Form SSA-1099 on your income tax return because it helps to determine if any tax is due on your benefits.
Although Social Security benefits must be reported on your income tax return, your benefits may not be taxed. To determine if your Social Security benefits are taxable, first calculate one-half of your Social Security benefits plus all of your other income (such as wages, business income, and taxable interest). This number is called your combined income. This total is called your "combined income."
According to the IRS:
- If you file as single and your combined income is between a lower and upper limit set annually by the IRS, up to 50% of your benefits may be taxable. If your combined income exceeds the upper limit, up to 85% of your benefits may be taxable.
- If you file a joint return, higher thresholds apply before benefits become taxable.
The specific income thresholds are set by law and do not adjust for inflation, so COLA increases may cause some beneficiaries to owe taxes for the first time. You can find the most current IRS information on benefit taxation at IRS Notice 703.
Contact a tax professional for assistance with preparing your income tax return or if you have questions about how your Social Security benefits are taxed.
Can the COLA increase affect my taxes?
Yes, a COLA increase can affect how much of your Social Security benefits are taxable. The increase may raise your total income and cause a larger portion of your benefits to be subject to taxation, depending on your combined income and other sources of income. In some cases, a COLA can even push part of your income into a higher tax bracket.
If you have questions about how your COLA increase or benefits may affect your specific tax situation, you can consult a lawyer or financial advisor familiar with Social Security and tax rules.
Please note: This page offers general legal information, not but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask a Legal Pro.
