Good news for millions of retirees: The Social Security Fairness Act is eliminating the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). These provisions previously reduced Social Security benefits for approximately 3.2 million public-sector retirees who also receive pension income. Now, with this change, many could see a significant increase in their Social Security payments.
What This Means for Beneficiaries
The law is retroactive to January 2024, meaning that those affected may receive a one-time retroactive payment worth thousands of dollars in addition to higher monthly benefits going forward. This financial boost could help many retirees better manage their expenses and enjoy a more comfortable retirement.
The Potential Tax Impact
While this increase in benefits is welcome news, there’s a potential downside: taxes. According to Mark Kohler, certified public accountant and author, Social Security recipients could face a larger tax bill in the coming tax year. Although the payments are retroactive, they will be received in 2025 and count as taxable income for the 2025 tax season.
How to Minimize Tax Burden
Retirees looking to avoid an unexpected tax increase have a few options:
- Reduce Withdrawals from Retirement Accounts: Lowering distributions from taxable retirement accounts can help manage overall taxable income.
- Make Qualified Charitable Distributions (QCDs): Donating directly to a qualified charity from an IRA can lower taxable income.
- Reallocate funds on your IRS 1040 or 1040-SR: The IRS allows recipients to allocate their lump sum retroactive payment to the previous tax year, potentially reducing their tax burden.
Read more about this important change to benefits and the tax implications here.
If you or someone you know is affected by these changes, it’s essential to plan ahead to optimize financial benefits while minimizing tax liability.
Stay informed and consult a financial professional to make the most of this Social Security boost.
We believe that a bill we call The Elder Relief Act is the best option to create significant change for retirees aged 82 and up. Learn more about this proposed legislation and what we are doing to help older Americans here.