The Social Security Fairness Act, enacted on January 5, 2025, eliminates the provisions known as Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). These phrases may sound like something complicated, but they’re not, and they might be impacting your filing in the upcoming tax season.
These rules reduced or eliminated the benefits of Social Security for more than 2.8 million people who receive pensions from jobs not covered by Social Security taxes, such as certain public sector workers: teachers, firefighters, police officers, and federal employees under the civil service retirement system.
The Catch with Your $6,700 Social Security Windfall
The law came into effect retroactively from January 2024. The Social Security Admnistration (SSA) began adjusting monthly payments on February 25, 2025. Most affected beneficiaries received their new, increased monthly amounts in April 2025, corresponding to the March benefits. The adjustment continued until July 2025. The SSA issued more than 3.1 million payments totaling $17 billion, completing the process five months ahead of schedule.
Retroactive payments consist of a single sum that covers the increase in benefits from January 2024. These amounts are deposited directly into the bank account registered with the SSA. These payments are accompanied by email notifications explaining the changes. The average retroactive payment is estimated at around $6,700, though it varies depending on the individual case.
Social Security Fairness Act: Impact on the 2025 Tax Return
The payments received in 2025, both the increased monthly payments and the retroactive lump sums, are reported as benefits of Social Security corresponding to fiscal year 2025. The SSA will submit the form SSA-1099 in January 2026, detailing the total benefits received during 2025, including retroactive amounts. This form is also sent to the Internal Revenue Service (IRS).
The taxation of Social Security benefits remains unchanged after the law’s passage. Up to 85% of the benefits may be federally taxable, depending on the taxpayer’s combined income. This combined income is calculated by adding adjusted gross income, plus non-taxable interest, plus half of the Social Security benefits received.
Taxable Incomes that Include Social Security
For single filers or heads of household, if the combined income is less than $25,000, the benefits are not taxable. Between $25,000 and $34,000, up to 50% may be taxable. Above $34,000, up to 85% may be taxable. For married filers filing jointly, the thresholds are $32,000 (no tax), between $32,000 and $44,000 (up to 50%), and above $44,000 (up to 85%).
Including the retroactive lump sum in 2025 income could raise combined income and increase the taxable portion of total benefits. This could push the taxpayer into a higher tax bracket or affect other elements, such as income surcharges on Medicare insurance premiums (IRMAA).
The Single Sum Option in the Tax Return
Beneficiaries receiving retroactive payments have the option to apply the single sum choice (lump-sum election) when filing their tax return. This option allows them to recalculate the taxable portion of the benefits using the income from the previous year (2024 in this case), instead of including everything in 2025.
To make this choice, the taxpayer ticks the corresponding box on line 6c of Form 1040 or Form 1040-SR. The IRS provides worksheets in Publication 915 to calculate whether this method reduces the taxable amount. The choice only applies if it results in lower taxation; otherwise, everything is included in the year of receipt.
The single sum choice does not require amending the previous year’s return. The form SSA-1099 for 2025 reflects the total received, and the calculation is performed in the current tax return.
The OBBBA Legislation Also Concerns to Your Social Security Benefits
The law known as the One Big Beautiful Bill Act, signed in July 2025, introduces an additional temporary deduction for individuals age 65 and older. This deduction is up to $6,000 for individuals or $12,000 for couples filing jointly, applicable in tax years 2025 through 2028.
The deduction is phased out above certain levels of modified adjusted gross income ($75,000 for single individuals and $150,000 for couples). This measure is separate from Social Security benefits and does not eliminate their taxation, but it can offset part of the tax impact.
State taxes on Social Security benefits vary by jurisdiction. Some states do not tax these earnings at all, while others have their own rules. The increase in benefits could modify the state tax liability.
Beneficiaries can adjust the voluntary tax withholding on their monthly payments using the form W-4V of the SSA. Those who anticipate higher taxes due to the additional income could make estimated payments to avoid penalties.
