The 2023 COLA raised SSDI payments by 8.7 percent, the largest increase in four decades

In October 2022, the Social Security Administration announced that the 2023 Cost of Living Adjustment (COLA) would be 8.7 percent. This was the biggest annual increase since 1981. The raise took effect on January 1, 2023, and affected everyone receiving Social Security Disability Insurance (SSDI), Supplemental Security Income (SSI), and retirement benefits.

The 8.7 percent figure came from the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which measures inflation across food, housing, transportation, and other goods and services. Because inflation spiked sharply in 2022—driven by supply chain disruptions, energy prices, and pandemic-related demand—the CPI-W rose enough to trigger the largest COLA in decades.

For someone receiving the average SSDI payment of $1,345 per month in 2022, the 8.7 percent increase meant an additional $117 per month starting in January 2023, bringing the average to $1,462. The exact amount of your increase depended on your individual benefit amount, which is based on your earnings record and the age at which you became disabled.

Key Takeaways

  • The 2023 COLA of 8.7 percent was the largest increase since 1981 and applied automatically to all SSDI recipients on January 1, 2023.
  • Your new payment amount was based on your 2022 benefit, so someone receiving $1,000 per month would have received an $87 increase, while someone receiving $2,000 would have received $174.
  • The increase was driven by inflation measured through the Consumer Price Index for Urban Wage Earners and Clerical Workers, which rose 8.7 percent in 2022.
  • If you also receive Medicare, your Part B premium may have increased, which could have offset some or all of your COLA raise depending on your income and state.

How the 8.7 percent was calculated and announced

The Social Security Administration calculates COLA each year using the average Consumer Price Index for the third quarter (July, August, September) compared to the same three months in the previous year. In 2022, that comparison showed an 8.7 percent increase in the cost of living.

The announcement came in October 2022, giving beneficiaries and the government three months to prepare. Social Security mailed a notice to every SSDI recipient in December 2022 showing the new benefit amount effective January 1, 2023. You could also check your new amount by logging into your my Social Security account online or by calling 1-800-772-1213.

Because COLA is tied to inflation data that is already public, the percentage cannot be negotiated or changed by Congress. It is a formula-driven adjustment. However, Congress can and has changed the formula itself in the past—most recently in 1983, when it adjusted the calculation method to use the CPI-W instead of a different index.

Why 2023 was different from recent years

From 2009 through 2020, COLA increases were very small—often between 0 and 1.7 percent per year. Many beneficiaries saw no increase at all in some years. This was because inflation was low and stable during that period. The 8.7 percent jump in 2023 was shocking partly because it was so much larger than what people had grown used to.

The spike came from a combination of factors: pandemic-related supply shortages, increased demand for goods as people spent more time at home, energy prices rising sharply after Russia's invasion of Ukraine, and labor shortages pushing wages and service costs higher. By mid-2022, inflation was at its highest level in four decades, which is why the COLA calculation reflected such a large increase.

The 8.7 percent COLA did not fully offset inflation for many beneficiaries, however. Inflation continued to rise through 2023, and the COLA was based on 2022 data. This meant that even with the large increase, some people on fixed incomes still lost purchasing power over the course of 2023.

What happened to Medicare Part B premiums in 2023

One important detail: while SSDI payments rose 8.7 percent, Medicare Part B premiums also increased. For most beneficiaries, the Part B premium is deducted automatically from the SSDI payment each month. In 2023, the standard Part B premium was $164.90 per month, up from $170.10 in 2022—which was actually a decrease.

However, if your income was above certain thresholds, you paid a higher premium through Income-Related Monthly Adjustment Amounts (IRMAA). These higher premiums applied if your modified adjusted gross income from two years prior exceeded $97,000 for an individual or $194,000 for a married couple filing jointly. The thresholds and premium amounts change each year.

For someone receiving the average SSDI payment, the net effect of the 8.7 percent raise minus the Part B premium deduction was still positive—they received more money in their bank account. But the relationship between COLA and Medicare premiums is important to understand, because in some years the premium increase has nearly wiped out the COLA raise.

How the 2023 increase affected SSI and retirement benefits

The 8.7 percent COLA applied to all three major Social Security programs: SSDI, Supplemental Security Income (SSI), and retirement benefits. SSI recipients saw the same percentage increase as SSDI recipients, though the dollar amounts were different because SSI has a lower maximum benefit. In 2023, the federal SSI benefit rate was $914 per month for an individual, up from $841 in 2022.

Retirement beneficiaries also received the 8.7 percent increase. Someone receiving $2,000 per month in retirement benefits in 2022 received an additional $174 per month starting in January 2023. This meant that for the first time in many years, retirement and disability beneficiaries received the same COLA percentage, which is always the case—COLA is never different between the programs.

Some states supplement SSI payments with their own state funds. Those state supplements did not automatically increase by 8.7 percent. Each state decided whether and by how much to raise its supplement. This meant that SSI recipients in different states saw different total increases to their monthly income.

What changed for people who work under SSDI work incentives

If you were receiving SSDI and working under a work incentive program like Impairment Related Work Expenses (IRWE) or Plan to Achieve Self-Support (PASS), the 8.7 percent increase to your benefit amount did not change how those programs worked. However, it did affect your countable income in some cases.

For example, if you use IRWE to deduct certain work-related expenses from your earnings, your remaining earnings are compared against the Substantial Gainful Activity (SGA) limit to determine if you are still disabled. In 2023, the SGA limit was $1,470 per month (or $2,460 for blind beneficiaries). Your SSDI benefit itself does not count toward this limit, so the increase did not directly affect your work incentive calculations.

However, if you were using PASS to set aside income and resources toward a work goal, the increase to your SSDI benefit meant you had more money available to set aside. This could have allowed you to reach your goal faster or to increase the scope of your plan.

Frequently Asked Questions

Did I have to do anything to receive the 2023 COLA increase?

No. The increase was automatic and applied to everyone receiving SSDI on January 1, 2023. You did not need to contact Social Security, fill out a form, or take any action. Your new payment amount appeared in your bank account on the first payment day of January 2023.

What if I thought my increase was wrong?

You could verify your new benefit amount by logging into your my Social Security account at ssa.gov, calling 1-800-772-1213, or visiting a local Social Security office. If the amount was incorrect, you could report it to Social Security and request a correction. Most errors were caught and fixed automatically, but reporting it ensured a faster resolution.

Will there be another COLA increase in 2024?

Yes, but the size depends on inflation in 2023. The Social Security Administration announces the next year's COLA in October each year. The 2024 COLA was 3.2 percent, much smaller than 2023 because inflation had cooled significantly by mid-2023.

How does COLA affect my taxes on SSDI?

SSDI itself is not taxable income for federal tax purposes. However, if you have other income, a portion of your SSDI may become taxable. The 8.7 percent increase to your benefit could have pushed you into a higher combined income bracket, potentially making more of your SSDI subject to tax. You should review your tax situation with a tax professional if your income changed significantly.

Did the 2023 COLA increase affect my Medicaid coverage?

That depends on your state. Some states use SSDI benefit amount as a factor in determining Medicaid may be able to access. If your state did, the 8.7 percent increase could have affected your may be able to access or the services you receive. Contact your state Medicaid agency to confirm whether the COLA increase changed your coverage.