Biden’s signature bill increases Social Security benefits for retirees
Many people are seeing an increase in their Social Security payments, thanks to legislation aimed at correcting years of benefit cuts for public employees.
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The Social Security Fairness Act, signed into law in early 2025, is currently unfair, at least when it comes to taxes, according to some members of Congress.
The Social Security Fairness Act eliminated the Windfall Exemption Provision (WEP) and the Government Pension Offset (GPO), reducing Social Security benefits for approximately 3.2 million retired public employees who also earned pension income. The law’s effective date was retroactive to January 2024, so many beneficiaries received one-time retroactive benefits last year that could amount to thousands of dollars and larger monthly benefits starting in 2025.
Experts say that surge in income last year likely meant many people faced higher taxes. To address the potential tax bomb, Rep. Lance Gooden (R-Texas) introduced the bipartisan Recovery Benefits Tax Exemption Act in early February, which would amend the tax code to specifically exclude from federal taxable income retroactive Social Security payments related to WEP and GPO repeals.
“The bipartisan Social Security Fairness Act was truly transformative for hundreds of thousands of Americans, ensuring they receive the benefits they deserve,” Rep. Chellie Pingree, D-Maine, a co-sponsor of the bill, said in a news release. “But it was never intended to impose a windfall tax on widows, low-income seniors, or dedicated public servants.”
How much is the additional tax?
How much people’s Social Security benefits are taxed is determined by the total amount of their income, including nontaxable interest such as municipal bonds, plus one-half of their Social Security benefits for the tax year.
Up to 85% of your Social Security benefits can be taxed, depending on how much your total income exceeds the threshold for your filing status.
The basic amount based on application status is as follows.
- $25,000 if single, head of household, or eligible surviving spouse
- $25,000 if you are married and file separately and live separately from your spouse for the entire year
- $32,000 if married filing jointly
- If you’re married and file separately and live with your spouse at any time during the tax year, it’s $0.
If you’re married and filing a joint return, you and your spouse must combine your income and Social Security benefits when calculating the taxable portion of your benefits. Even if your spouse did not receive benefits, you must add his or her income to your income when calculating whether your benefits are taxable on your joint return.
The Social Security Administration offers a tool to help you calculate whether and how much your Social Security benefits are taxed.
Jaime Eckels, a certified financial planner and wealth management partner at Plante Moran Financial Advisors, said that in addition to the higher percentage of Social Security benefits being taxed, beneficiaries also need to be aware of their overall income taxes.
“This payment could push an individual into a higher tax bracket or IRMMA bracket, impacting Medicare premiums,” he said.
IRMAA stands for Income-Related Monthly Adjustment Amount and is an additional charge added to Medicare Part B and Part D premiums for high-income individuals.
Can the “Recovery Benefits Tax Exemption Law” be passed?
Some experts said they doubted whether the tax law reform bill would pass.
“In my opinion, the chances of anything passing this Congress are pretty slim,” said Philip Hulme, owner of Stars and Stripes Financial Advisors. “I think last year we set a record for the fewest bills passed by any class of Congress.”
But also, never say never.
“This is probably one of the few tools they (politicians) can use to rally support for themselves,” he said. “After all, who doesn’t like free money?”
Can the beneficiary reduce their taxes?
People have several options they can try to avoid further taxes. According to experts, they include:
- If a retroactive lump sum payment causes your total income to exceed the Social Security tax threshold, the IRS will allow you to allocate it to the year it was originally received, Eckels said. There is also no need to “amend” your previous year’s tax return. Instead, if the taxable portion of your benefits is reduced, check the box on line 6c of Form 1040 or 1040-SR to pay last year’s taxes on this year’s tax return.
- Contact your local Taxpayer Assistance Center or CPA for guidance on avoiding Medicare IRMAA increases. “Since the outstanding balance is not expected to continue, they may argue that they expect a reduction in income and may be subject to the IRMAA exclusion,” Hulme said. “You have to file Form SSA-44 to request an exception, but since this is a new use case, we don’t know what the IRS will decide.” But it’s worth a try, he said.
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
