Historically, Social Security implements a cost-of-living adjustment (COLA) to ensure the purchasing power of Social Security and Supplemental Security Income (SSI) benefits are not decreased due to inflation.

Enacted as part of the 1972 Social Security Amendments, the COLA is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined through the third quarter of the current year. The CPI-W is determined by the Bureau of Labor Statistics, which is in the Department of Labor.

If the CPI-W increases more than 0.1% year over year, then Social Security will raise benefits by the same amount. If there is no increase, there is no COLA.

However, it's evaluated on an annual basis and beginning in 1975, the SSA started automatic annual cost-of-living allowances so that inflation won't drain the value from benefits.

In this article, learn more about the Social Security increase for 2022, how the "hold harmless provision" protects your benefit payment, and what this means for you.

Cost-of-living adjustment for 2022

Social Security and SSI benefits for about 70 million Americans increased 5.9% in 2022. The COLA began for Social Security beneficiaries in January 2022, and SSI benefits began December 30, 2021.

This increase is the largest since 1982. In 2021, the increase was only 1.3%.

Other adjustments that took effect in January 2022 include:

• The maximum amount of earnings subject to the Social Security tax (taxable income) increased to $147,000 (up from $142,800 in 2021). Any income above this amount is not subject to tax
• The earnings limit for workers who are younger than "full" retirement age increased to $19,560 (up from $18,960 in 2021)
• The earnings for people reaching their "full" retirement age in 2022 increased to $51,960 (up from $50,520 in 2021)

For those younger than "full" retirement age, $1 is deducted from benefits for each $2 earned over $19,560. For people who are reaching "full" retirement age in 2022, $1 is deducted from benefits for each $3 earned over $51,960 until the month the worker turns "full" retirement age.

Note that there's no limit on earnings for workers who are "full" retirement age or older for the entire year.

The following outlines examples of estimated monthly Social Security benefits payable in January 2022:

One thing that didn't change is Social Security tax rates. In 2022, the rates remain 6.2% on employees and 12.4% on self-employed.

How do I know if I'm impacted by the cost-of-living adjustment?

Social Security COLA notices were available online to most beneficiaries in December 2021, within the Message Center of their mySocial Security account. Or, they may have received notification in the mail if they have set that as their preferred way to receive courtesy notifications.

Cost-of-living adjustments since 2002

Over the past 20 years, the COLA has ranged from 0% to 5.9%:

What is the "hold harmless provision"?

The SSA works closely with the Centers for Medicare and Medicaid Services (CMS) to ensure beneficiaries don't have a reduction in Social Security benefits due to a Medicare Part B premium increase. This rule is called the "hold harmless provision."

This provision protects beneficiaries' Social Security benefit and keeps it from decreasing even if the Part B premium increases.

For example, in 2022 the Part B premium is $170,10, which is an increase of $21.60 from 2021. But you'll only be responsible for the rise in Medicare premiums up to your COLA.

Many Medicare beneficiaries have their Part B premium automatically deducted from their Social Security benefits. Most will pay the new premium amount because the increase in their benefit amount covers the increase. However, some people will see little or no increase in their premium, and their benefit checks will not change because their COLA isn't enough to cover the increase.

In order to qualify for the hold harmless provision, you must:

• Receive or be entitled to Social Security benefits for November and December of the previous year
• Have your Medicare Part B premiums for December and January deducted from your monthly benefits

On the other hand, the hold harmless provision does not apply to you if you:

• Enroll in Part B for the first time in 2022
• Pay an income-related monthly adjustment amount premium
• Are dually eligible for both Medicare and Medicaid, and your premium is paid by a State Medicaid agency