Dose is too low. It needs to be titrated higher by your doctor till symptoms resolve. 0.25, even 0.5 mg is a starting dose of Xanax for panic disorder. Control of panic before SSRI's kick in is a perfect example of short-term use of benzos. Take what you need to control your panic attacks, but only then.
Low long have you been on Zoloft? SSRI's can take several weeks to have an effect, and may make you more anxious in the meantime. If it starts working for you, consider yourself lucky; you can probably be weaned off the Xanax or at least not have to take it daily.
"Tolerance to the anxiolytic effects (of BZD's) probably does not occur"