The government will announce the Social Security cost of living adjustment (COLA) for 2025 on October 10, 2024. Although it is not expected to be a large increase compared to recent years, it is still important for all those people who depend on Social Security checks or deposits.
Handfuls of Americans receive a slight increase in their Social Security payments year after year, thanks to what is known as a cost-of-living adjustment, or COLA. There are two things you should have as soon as the COLA is announced, so that you can be as prepared as possible for next year 2025.
How COLA Will Affect Your Social Security Payments
Social Security cost-of-living adjustments are percentages; For example, the cost of living adjustment for 2024 was 3.2%. Therefore, when the next 2025 cost-of-living adjustment is released, it may not be immediately apparent how much more you will receive in your monthly benefits. Fortunately, it is not that complicated to do the calculation.
Technically, the Social Security Administration (SSA) applies the COLA to your primary insurance amount (PIA). That is the benefit you are entitled to when you reach full retirement age (FRA), which is between 66 and 67 years old. For those who do not apply for the benefit in their FRA, the government does some additional calculations to adjust your benefits up or down based on your initial age at which you applied.
What TSCL Says About This Issue
But adding the percentage to your current checks can give you a pretty good estimate. For example, let’s pretend you receive a monthly benefit of $2,000 right now, and the 2025 COLA is 2.5% (the latest projection, according to The Senior Citizens League, TSCL). An additional 2.5% on $2,000 is $50, which means you will receive a new monthly benefit of $2,050 per month. This could be a dollar or two apart, but it should be pretty close.
If you do not want to do this calculation yourself, the Social Security Administration will be sending you a personalized COLA notice in December that will detail your exact benefit for 2025. You may be able to verify this information beforehand in a my Social Security account.
Yes, Might Owe New Taxes on Social Security Benefits
The IRS taxes some seniors’ Social Security benefits if their provisional income (calculated as adjusted gross income (AGI) plus any nontaxable interest they earned on investments and half of their annual Social Security benefits) exceeds the following thresholds according to your marital status:
| Marital status | 0% of taxable benefits if the provisional income is less than: | Up to 50% of taxable benefits if the provisional income is between: | Up to 85% of taxable benefits if provisional income exceeds: |
| Single | $25,000 | $25,000 and $34,000 | $34,000 |
| Married | $32,000 | $32,000 and $44,000 | $44,000
|
Tax Liability for Seniors
These thresholds are not indexed to inflation, which means that more seniors end up owing these benefits as their checks increase due to cost-of-living adjustments. This can lead to a not very pleasant surprise when it comes to paying taxes.
It’s not that difficult to calculate half of your annual Social Security benefit, but the other aspects of provisional income may be unknown to those who are not tax professionals. You may want to get a professional to help you calculate how much you risk owing in taxes on Social Security benefits next year so you can plan accordingly.