The Social Security Fairness Act is righting some of the wrongs perpetrated under the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), but is it all good news? There are consequences that come with the extra income, and it’s best you’re aware of your tax liabilities before you make plans with the money.
According to the Social Security Fairness Act, up to 85% of Social Security benefits are taxable, depending on the beneficiary’s income. You can find out what to expect in terms of tax on retroactive payments below.
The WEP and GPO have been eliminated: Retroactive payments are on the way
US Congress passed the Social Security Fairness Act on January 5, 2025, which does away with the WEP (Windfall Elimination Provision) and the GPO (Government Pension Offset). These provisions meant that Social Security benefits were reduced for over three million people receiving a pension for being employed in a sector that was not covered by Social Security. As such, they did not contribute income taxes toward the Social Security fund.
The majority of affected employees are retired police officers, firefighters, teachers, and other federal workers who are covered under the Civil Service Retirement System. These retirees are eligible for a retroactive payment, but they need to be aware of how this could increase their tax liability.
Retroactive payments started going out on February 25, 2025, and the Social Security Administration reports that the majority of recipients will have received theirs by the end of March. Hopefully, this schedule won’t be affected by recent staffing cuts in the SSA.
What are the tax implications of increased Social Security retirement benefits?
An increase in benefits may push a recipient’s combined income into a higher tax bracket, meaning that a greater portion of Social Security income may be claimed by the IRS. Current tax law states that up to 85% of Social Security benefits are taxable, but this depends on the recipient’s combined income (also referred to as provisional income).
“Provisional or combined income” refers to one’s adjusted gross income, plus any tax-exempt interest earned, and half of all Social Security benefits.
Retirees who receive the retroactive payment will also be receiving increased monthly payments, and if this pushes them beyond the next tax threshold, they’ll be facing a higher tax liability in the next filing season.
Combined income tax thresholds
These are the relevant income thresholds that apply to tax on Social Security benefits:
- For taxpayers with a combined income of $25,000 or less per year (for single filers) or $32,000 (for couples filing jointly), there is no tax payable on any Social Security benefits,
- A combined annual income between $25,001 and $34,000 (for individuals) or between $32,001 and $44,000 (for joint filers) will see up to 50% of Social Security benefits being taxed.
- Single taxpayers who earn more than $34,000 or couples whose income exceeds $44,000, up to 85% of Social Security benefits are liable for taxation.
What else do you need to know about the tax implications under the Social Security Fairness Act?
Here are some frequently asked questions about tax responsibilities after Social Security benefits adjustments:
- How will Medicare premiums be affected? Retirees may be moved into higher income brackets, which could trigger IRMAA surcharges (the amount you are liable to pay over and above your Part B or Part D premium).
- When would Medicare premiums be affected? The 2025 increases will likely affect premiums from 2027.
- Are there different laws for different states? Yes, some states tax all Social Security benefits, some in part, and some not at all.
The best strategy for Social Security recipients is to remain well-informed and be proactive about planning your own finances. Remember to only rely on reliable sources of information, such as the Social Security Administration’s official website or verified social media channels. You may also want to check up on the expected payment dates for the retroactive benefits.