Some Social Security recipients could be in for a surprise when it comes to their tax refunds this year.
Because the Social Security Fairness Act was signed into law last year, many seniors saw their monthly benefits rise, and that will end up affecting tax refunds this year.
Why It Matters
Roughly 3 million Social Security beneficiaries saw their benefits change last year. Changed tax refunds as a result of the extra income could impact seniors who are expecting a certain amount in refunds for tax year 2025.
What To Know
The Social Security Fairness Act got rid of the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). That caused roughly 2.8 million beneficiaries who originally earned benefits to receive higher monthly payments from Social Security. They also received retroactive lump-sum payments.
That, plus President Donald Trump’s One Big Beautiful Bill Act adding a tax deduction of up to $6,000 for eligible seniors, means up to 85 percent of Social Security benefits are possibly subject to federal taxes.
While some seniors got a minimal boost from the Social Security Fairness Act, others saw more than $1,000 added to their monthly benefits. Depending on your specific financial situation, that could lead to higher tax liabilities despite the new senior deduction.
“WEP and GPO got repealed, which sounds like a win until you realize it came with retroactive lump-sum checks for 2024,” Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek. “Those checks, ranging from a few hundred bucks to over $12,000, are fully taxable in 2025. Up to 85 percent of that money gets taxed if your combined income exceeds $25,000 for singles or $32,000 for joint filers.”
However, seniors are eligible for the $6,000 deduction if they have a modified adjusted gross income of less than $75,000.
The Social Security Fairness Act generally affects state teachers, firefighters and police officers as well as federal employees who were originally covered by the Civil Service Retirement System if they received pension benefits.
What People Are Saying
Michael Ryan, a finance expert and the founder of MichaelRyanMoney.com, told Newsweek: “Long term, this law moved Social Security’s insolvency date up by roughly six months. The repeal of WEP and GPO decreased the actuarial balance by 0.14 percent of taxable payroll, which the trustees report calls a ‘substantial effect.’ The fund was already projected to run out between 2033 and 2035. Now it’s closer to 2033.”
Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: “The Social Security Fairness Act means that many beneficiaries are finally seeing retroactive lump-sum payments and higher monthly benefits. However, those larger 2025 payments can unexpectedly bump some retirees into taxable income brackets, creating a surprise tax bill for them. While beneficiaries may get excited about getting this money back, the tax system doesn’t differentiate between regular benefits and retroactive payments, so planning ahead is crucial to avoid a shock at filing time.”
What Happens Next
Seniors who received a boost in benefits as a result of the repeal of the WEP and GPO should check with a tax adviser about best practices ahead of the tax filing deadline of April 15.
“For retirees depending on these benefits, working with a tax adviser and adjusting withholdings is key in helping to manage the mix of income increases and taxes this year,” Beene said.
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