On January 5, 2025, Joe Biden signed a bill into law that raises Social Security benefits for millions of Americans. The increase applies to current and former public service workers, such as police officers, teachers, and firefighters. The bill, which is called the Social Security Fairness Act, affects around three million people’s pensions. It’s being described as a positive move to rectify a discrepancy in how Social Security benefits used to be limited under certain conditions.
The Social Security Fairness Act sees public workers’ pensions go up
The Social Security Fairness Act cancels two provisions, the Government Pension Offset and the Windfall Elimination Provision. These policies used to limit Social Security benefits for public workers if they received any other pension funds from any other source, even retirement programs under the local or state administration.
In December 2023, statistics from the Congressional Research Services indicated that almost 746,000 people, or around 1% of all Social Security beneficiaries, had their benefits limited by the Government Pension Offset. About 3% of all beneficiaries, or around 2.1 million citizens, were similarly affected by the Windfall Elimination Provision.
In September 2024, the Congressional Budget Office estimated that doing away with the Windfall Elimination Provision is going to increase previously affected beneficiaries’ monthly payment amounts by an average of $360 by the end of 2025.
How much more money will beneficiaries see each month?
With regard to rescinding the Government Pension Offset, monthly benefits will increase by an average of $700 for around 380,000 recipients who receive benefits based on living spouses’ work records. The increase translates to an average of $1,190 more for 390,000 surviving partners receiving widow or widower’s benefits.
Both of these amounts will increase over time with Social Security’s annual Cost-of-Living Adjustment (COLA).
Biden said during the signing ceremony for the new bill in the White House East Room:
“The bill I’m signing today is about a simple proposition: Americans who have worked hard all their life to earn an honest living should be able to retire with economic security and dignity — that’s the entire purpose of the Social Security system. This is a big deal.”
The new bill is going to put a strain on the already-pressurized Social Security Trust Funds
The new bill will put strain on Social Security Trust Funds, which face a looming insolvency crisis. Most people take it for granted that the American administration, government, and economy are stable enough to pay Social Security benefits indefinitely and that they’re assured of a pension from the Social Security Administration if they meet the criteria, but this is not actually the case.
A 2024 Social Security Administration (SSA) report detailed how the program is facing insolvency. By 2034, the fund will be unable to pay full benefits unless a plan is made soon.
One of the biggest reasons for this is that the fund is paying out more than it’s accumulating, meaning fewer workers are contributing in comparison to the number of people drawing.
Increased benefits could translate into higher taxes
Social Security beneficiaries whose income is above a certain threshold may have their benefits taxed. As the law stands, up to 85% of Social Security funding income may be taxed.
The income thresholds on which the tax levies are based are not adjusted for annual inflation. This means that more beneficiaries are liable to pay taxes on benefits over time. Taxes are calculated based on the combined income formula, which is the sum of recipients’ adjusted gross income, nontaxable interest, and half of their Social Security benefits.
Individual taxpayers pay taxes on up to 50% of their benefits if their combined income is between $25,000 and $34,000. For couples who file jointly, the amount is between $32,000 and $44,000.
Individuals whose combined income is more than $34,000 may be liable for taxes on up to 85% of their benefits. The amount is $44,000 for joint filers.
There are other changes being applied to how the Social Security Administration operates and some benefits are going to be affected in 2025.