What the cost-of-living adjustment increase in Social Security means

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(NewsNation) — More than 72 million Americans can expect to see a 2.5% cost-of-living adjustment increase in their Social Security and Supplemental Security monthly payments beginning in 2025, government officials have announced.

The cost-of-living adjustment (COLA) increase will affect 68 million Social Security beneficiaries and will begin in January, the Social Security Administration said. Meanwhile, the government agency said the 2.5% increase for 7.5 million SSI recipients will begin earlier, with the jump going into effect in December.

The maximum amount of earnings that is subject to Social Security tax will also increase to $176,100, officials said.

Social Security calculator: Figure out your monthly benefits

However, before recipients begin seeing more money in their monthly checks, they can expect to see a notice that will arrive in December, which details how their monthly allotments will change. The notices will be available online and will arrive in the message center of the beneficiaries’ My Social Security account page. The agency said that notices outlining monthly changes would be sent via email.

Beginning in 2025, the Social Security Administration will provide more streamlined reports to beneficiaries that provide specific information, including the exact amounts of monthly payments and the date on which recipients can expect to see their money.

Here’s a look at what Social Security and SSI recipients can expect to see in 2025.

What a 2.5% cost-of-living adjustment increase looks like

The Social Security Administration estimates that the 2.5% increase in cost-of-living adjustments will mean about an extra $50 in most recipients’ monthly checks.

CNBC reported that the monthly bump is the smallest that Social Security and SSI beneficiaries have seen since 2021. The agency said that the cost-of-living adjustment, which is meant to offset the rising costs of basic needs, is smaller because the pace of inflation has slowed.

Recipients saw the largest monthly jump in 2023 when the COLA increase was 8.7%. That compares to 2022, when the increase was 5.9%, and this year, when beneficiaries saw a jump of 3.2%, the report said.

More money could mean higher taxes

Social Security benefits are taxed on a combined income basis, according to the Social Security Administration. The agency says that about 40% of Americans who receive Social Security benefits must pay federal taxes on their payments. Most of those who are required to pay taxes on their benefits have substantial income on top of the monthly checks they receive from the government.

You can get paid $2,500 to shop at Costco for a week

The agency said that recipients who file with the IRS as individuals will pay taxes on Social Security and SSI if their annual combined income is between $25,000 and $34,000, in which case they will pay taxes on up to 50% of their monthly payments. If a recipient’s annual combined income is more than $34,000, they can expect to be taxed on about 85% of their monthly benefit.

Those who file a joint return with the IRS will pay taxes on up to 50% of their monthly benefit if their combined income is between $32,000 and $44,000 and will pay taxes on 85% of their monthly checks if their combined income is more than $44,000, the agency said.

Recipients may choose to request withholdings be deducted from their monthly checks for their federal tax return, the agency said. Considering that option and whether to adjust the amount they have withheld could come into play based on the increases that will be coming in 2025, Jim Blair, vice president of Premier Social Security Consulting, told MSNBC.

President-elect Donald Trump has vowed to end taxes on Social Security benefits, but tax experts predict his campaign promise may be tough to pull off, NewsNation previously reported.

“You would have to have bipartisan buy-in to do that, and it’s hard for me to imagine that happening,” Charles Blahous, a senior research strategist at the Mercatus Center at George Mason University who specializes in Social Security, told NewsNation.

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