How the Social Security Fairness Act Could Change Retirees’ Taxes
Written by
Heather Altamirano
Edited by
Amen Oyiboke
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Concerns about the state of Social Security continue to grow among Americans. According to a recent LendingTree survey, 62% of respondents fear they won’t be able to retire without Social Security, while 59% worry the program won’t exist when they leave the workforce.
As people nervously look towards the future of Social Security, a major change will impact certain retirees.
The Social Security Fairness Act has repealed two major provisions — The Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) — that will provide financial relief for some.
Here’s what to know about the change with Social Security and how it will impact retirees’ taxes.
“This change primarily benefits public sector retirees, such as teachers, firefighters, police officers, and certain federal employees, who had their Social Security benefits diminished due to these provisions,” said Peter Diamond, a federally licensed tax and certified bankability expert.
Many retirees could benefit from the changes, but not everyone will experience a bump in their monthly payments.
“This could restore full benefits to millions who earned them, which would lower their tax burden and increase monthly income,” said Danny Ray, founder of PinnacleQuote. “That’s real money back in their pockets.”
Repeal of the Windfall Elimination Provision
The Windfall Elimination Provision (WEP) penalized certain retirees. “Right now, WEP can reduce your Social Security benefit if you also get a pension from non-covered work,” Ray explained.
But now there’s good news for retirees who were impacted by this provision.
With its repeal, affected retirees may see an average monthly increase of approximately $360 in their Social Security benefits, Diamond said.
For example, a retired firefighter with a state pension and limited years in Social Security-covered employment might have experienced a reduced Social Security benefit due to the WEP.
“With the repeal, their benefit would now reflect their full earnings record, resulting in a higher monthly payment,” Diamond stated.
Repeal of the Government Pension Offset (GPO)
The Government Pension Offset (GPO) also crippled some retirees financially because of the guidelines.
According to Ray, the GPO cut spousal or survivor benefits by two-thirds of that pension. He explained, “Some retirees get zero Social Security because of these rules, even if they paid into the system at other jobs!”
But that should change now and have a positive impact on the people the GPO affected.
“Its repeal means that affected spouses and survivors can now receive full Social Security benefits without offset,” Diamond said. “A retired teacher receiving a state pension who was previously ineligible for full spousal Social Security benefits due to the GPO can now claim these benefits in full, potentially increasing their household income significantly.”
Retroactive Benefit Payments
Since the two provisions have been repealed, some retirees are eligible for retroactive payments, which can provide a real financial boost. For instance, an eligible retiree who had reduced benefits throughout 2024 due to the WEP or GPO can expect a lump-sum payment compensating for the difference.
“The repeal of WEP and GPO is retroactive to benefits payable from January 2024,” Diamond said. “The Social Security Administration has begun issuing lump-sum payments to affected individuals, with the average retroactive payment being approximately $6,710.”
Tax Implications of Increased Benefits
While there are positive aspects to repealing the GPO and WEP, there are potential drawbacks.
“The increase in Social Security benefits may lead to higher taxable income for some retirees,” Diamond said. “Under current tax laws, up to 85% of Social Security benefits can be taxable, depending on the retiree’s combined income.”
For example,a retiree whose combined income was previously below the threshold for taxing Social Security benefits might now exceed that threshold due to increased benefits, resulting in a higher tax liability.
Potential Impact on Medicare Premiums
Another downside: increased medicare premiums.
“Higher Social Security benefits could increase a retiree’s modified adjusted gross income (MAGI), potentially leading to higher Medicare Part B and D premiums due to Income-Related Monthly Adjustment Amounts (IRMAA),” Diamond explained.
For instance,a retiree who crosses into a higher income bracket because of increased Social Security benefits may see their Medicare premiums rise accordingly, impacting their overall retirement budget.
How Beneficial is The Social Security Fairness Act
Despite the potential downsides of the Social Security Fairness Act, Ray believes it is a “game changer.”
He explained, “[It changes] for those impacted by WEP and GPO, absolutely. For everyone else, it may not change much. But for those it does touch, it’s about fairness and financial relief in retirement.”
The Social Security Fairness Act could make a significant impact for public sector retirees, but there are tax implications to be mindful of when financial planning.
Diamond said, “Consulting with a competent tax professional or certified bankability expert is advisable to navigate these changes effectively and optimize retirement income strategies.”
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