On January 5, 2025, President Biden signed the Social Security Fairness Act (SSFA), H.R. 82, into law. The SSFA, which garnered bipartisan support in Congress, repeals specific provisions of the Social Security Act that reduced Social Security benefits for political subdivisions’ employees.
The Social Security Fairness Act eliminated the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). The WEP reduced Social Security benefits for individuals who earn a pension from work not covered by Social Security but who also have qualifying earnings from jobs covered by Social Security. The GPO is similar to the WEP, but it reduced Social Security spousal and widow(er) benefits of individuals who earned a pension from work not covered by Social Security.
Social Security maintains and updates an online resource to keep those affected by the SSFA updated on the evolving aspects of the Act. It can be accessed at Social Security Fairness Act: Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) update
Because of the law’s retroactive effective date, SSA must adjust people’s past and future benefits. SSA is helping the most affected beneficiaries now.
Some affected beneficiaries will receive a one-time retroactive payment by the end of March. For others, it could take more than one year.
Possible Tax Implications of Retroactive Payments
A lump-sum retroactive Social Security retirement payment can trigger changes in your Modified Adjusted Gross Income (MAGI), leading to higher Medicare premiums or other changes to your healthcare coverage.
Your MAGI determines eligibility for specific healthcare programs, including Medicare Part B premiums. IRMAA, or Income Related Monthly Adjustment Amount, is a Medicare Part B premium surcharge based on your MAGI.
A higher MAGI can result in increased IRMAA surcharges and elevated Medicare premiums. The IRS permits you to allocate a retroactive payment to the year it should have been received, which can help alleviate some of these consequences.
If the lump sum raises your combined income above the thresholds for the tax on Social Security, the IRS will allow you to allocate it to the year it should have been received.
Here are two articles that talk about the tax implications. Diego Perez Morales has an interesting online article: Does Eliminating the WEP and the GPO increase your Social Security payments andtax burdens?
The other article you should consider is Medora Lee’s USA Today article, Will you get a Social Security boost? Millions will. They may get a tax bill, too.
In the USA Today article, a certified public accountant, Mark Kohler, shares that Social Security recipients who received benefits from the WEP and GPO changes may be taxed on their 2025 taxes because income is recorded when the recipient gets the payment.
If the SSFA will affect you or your spouse, I strongly recommend sharing that information with your tax professional. Additionally, don’t forget your parents, especially widows or widowers, who could be affected by the Social Security Fairness Act, and suggest that they consult with their tax advisors.
This may be one of those events that pushes you and others to consider hiring a tax professional for the first time.
