Understanding the Social Security Fairness Act: Its Impact and Implications
Published on by Agnes Spoelker in Tax Services
1.1 million Americans got a welcome boost to their bottom line over the past few weeks as the Social Security Administration (SSA) started issuing retroactive payments under the Social Security Fairness Act (SSFA) – distributing more than $7.5 billion so far. And there are a lot more payments to go – approximately 2.1 million retirees and 770,000 surviving spouses are entitled to additional benefits under the new law.
Background on the SSFA
The Social Security Fairness Act (SSFA), enacted on January 5, 2025, repealed the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) – provisions that previously reduced Social Security benefits for certain public sector retirees, including teachers, firefighters, and federal employees covered under the Civil Service Retirement System. Repealing these means that affected retirees can now receive their full Social Security benefits, leading to a significant increase in their monthly payments in addition to the one-time back payment the SSA is currently distributing.
Potential downside for SSFA beneficiaries
The bad news for recipients of this financial windfall? Increased benefits come with potential tax implications, as up to 85% of Social Security income may be subject to federal taxes (depending on the recipient’s overall income level) – and that could mean a higher tax bill – especially for those on the cusp of a higher tax bracket.
In addition to federal tax implications, the SSFA’s increased benefits may also impact Medicare premiums by moving retirees into higher income brackets, potentially triggering Income-Related Monthly Adjustment Amount (IRMAA) surcharges. Also, state-level taxes on Social Security benefits vary, and the increased benefits could have different implications depending on where the recipient lives.
Time and money
The SSA started issuing payments in February and expects the majority to be completed by the end of March. Automation is helping the SSA distribute the payments in a shorter timeframe, though complex cases that can’t be processed this way will take longer to complete.
The average retroactive payment is estimated at about $6,710. On top of that, increased monthly benefit payments to those affected are expected to start in April 2025.
The Congressional Budget Office (CBO) estimates that public sector retirees can expect an average increase in monthly benefits of $360 in December 2025, reaching $460 by December 2033. While these estimates are averages, the actual amount of monthly benefits may vary greatly, depending on factors such as the type of Social Security benefit received and the amount of the individual’s pension.
What happens next
The SSFA is welcome news for many retirees – but understanding the possible tax impacts and planning strategically is key. Consulting a tax professional can help recipients navigate the changes and develop strategies to manage their increased benefits – examples include adjusting withholdings or making estimated tax payments. Most important – stay informed and proactive so you can maximize the benefits while minimizing tax surprises.
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