The purpose of the COLA is to ensure that the purchasing power of Social Security and SSI benefits is not eroded by inflation. It 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 to the third quarter of the current year. There was no COLA in 2010 and 2011 because the CPI-W, as determined by the Bureau of Labor Statistics in the Department of Labor, for those years did not increase above the level of the third quarter of 2008, the last year a COLA was determined.
Some other changes that take effect in January of each year are based on the increase in average wages. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $110,100 from $106,800.