How a High COLA Really Impacts Social Security Income

By Mary Johnson, editor

Now that the Social Security Administration has confirmed that Social Security benefits will increase by 5.9% in January of 2022, what’s next?  Several factors play an important role in determining the final financial impact that 2021’s high inflation will have on your Social Security income.  But beneficiaries won’t get the full picture until well into 2023 and beyond.  Although the increase in benefits is substantial, so are the offsetting impacts, because other associated factors could act to reduce your net Social Security benefit income in different ways.  Here’s what to watch for:

  1. Higher Medicare Part B premiums could absorb a significant portion of the COLA:  In 2020, with cost-of-living adjustments (COLAs) forecast to be just 1.3% in 2021, and with strong support of TSCL and its grass roots, Congress moved to restrict the amount that the Part B premium could increase for 2021.  That resulted in a low increase of $3.90 per month, from $144.60 in 2020 to $148.50 in 2021.  However, as Medicare beneficiaries make-up care that was postponed in 2020 due to the pandemic, Medicare costs are expected to climb in 2022.  The Medicare Trustees recently forecast that the Part B premium for 2022 would jump by 6.7% rising to $158.50 per month.  That would still outpace the growth of the COLA.
  2. Higher income can mean Medicare Part B and Part D premium surcharges that could absorb most, if not all of your COLA:  The level of Medicare premium that individuals pay is related to income.  The COLA will increase Social Security income and, for some higher-income beneficiaries, that could potentially push their incomes into the range subject to the income-related premiums, or a higher premium surcharge, if an individual already pays higher premiums.  Beneficiaries won’t know for sure until they do their income taxes for 2022 which can affect the cost of Medicare premiums for 2024.  Here’s what beneficiaries pay in 2021:
If your yearly income in 2019 (for what you pay in 2021) was You pay each month (in 2021)
File individual tax return File joint tax return File married & separate tax return
$88,000 or less $176,000 or less $88,000 or less $148.50
above $88,000 up to $111,000 above $176,000 up to $222,000 Not applicable $207.90
above $111,000 up to $138,000 above $222,000 up to $276,000 Not applicable $297.00
above $138,000 up to $165,000 above $276,000 up to $330,000 Not applicable $386.10
above $165,000 and less than $500,000 above $330,000 and less than $750,000 above $88,000 and less than $412,000 $475.20
$500,000 or above $750,000 and above $412,000 and above $504.90


  1. A high COLA could subject a larger portion of your Social Security benefits to taxation:  Depending on your income, Social Security benefits can be taxable, and a higher COLA could increase both your Social Security and taxable income.  Under current law, individuals with incomes of more than $25,000 and married couples filing jointly with more than $32,000 pay taxes on a portion of their benefits.  Because these thresholds are not adjusted for inflation over time, a growing number of beneficiaries pay the tax, and on a growing portion of their benefits.  How much more you pay in taxes probably won’t become apparent until 2023 tax season.
  2. Extra Social Security income could result in benefit trims for SNAP, rental subsidies and other low-income programs: Virtually all low-income programs such as food stamps, rental assistance, and Medicare Extra Help come with complex eligibility rules and income restrictions that are tied to a percentage of the federal poverty level, such as 100%, 135% or 150%.  If income is right on the borderline, and a high COLA is received, that potentially could cause trims to benefits from programs.  Some individuals might lose access to certain low-income benefits altogether because the COLA boosts their income over the limit. The effect tends to be tempered by the fact that the federal poverty level is adjusted for inflation every year as well, using the Consumer Price Index for Urban Consumers (CPI-U).  In many years the CPI-U grows slightly faster than the index used to adjust Social Security benefits, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).  Thus, the poverty level tends to keep pace with the COLA in many years.  But in 2021, the CPI-U has grown more slowly than the COLA, which could lead to widespread reductions of low-income program benefits for 2022.