Millions Gain From Social Security Fairness Act—But You May Owe Taxes on the Surprise Windfall

Millions of retired public employees—including teachers, police officers, and firefighters—are finally seeing the benefits of a major change in U.S. Social Security law. President Joe Biden signed the Social Security Fairness Act of 2023 into law on January 5, 2025, repealing two controversial provisions: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).

But while many beneficiaries will see thousands of dollars in retroactive payments and higher monthly checks, some may be in for an unwelcome surprise—a higher federal tax bill.

What the Fairness Act Changes

The WEP and GPO provisions, originally designed to prevent “double-dipping,” reduced Social Security benefits for individuals who also received non-covered government pensions. This primarily affected public sector workers who didn’t pay into Social Security for part of their careers.

With the repeal now active, approximately 3.2 million affected beneficiaries will receive increased monthly benefits starting from March 2025 (deposited in April), as well as retroactive payments going back to January 2024.

According to the Social Security Administration (SSA), the average back payment is $6,710, though some individuals may receive more depending on their work history.

Why the IRS Might Come Calling

While the benefit increases are a financial relief, experts warn that they may increase recipients’ taxable income, pushing some retirees into a higher tax bracket for 2025.

“Sudden increases in income, such as lump-sum retroactive Social Security payments, can trigger higher taxes,” said Kiplinger in a recent analysis. “Beneficiaries who were previously under the income threshold for paying taxes on Social Security may now find themselves owing.”

Here’s what to keep in mind:

• Up to 85% of Social Security benefits may be taxable, depending on your combined income.
• The sudden one-time retroactive lump sum is counted as income in the year it is received, not the year it was owed.
• Those who do not adjust their withholding or estimated tax payments could face underpayment penalties in early 2026.

What Beneficiaries Should Do Now

The SSA recommends reviewing your income and tax status immediately if you are affected by this change. You can update your withholding by submitting a Form W-4V to request voluntary tax withholding from your benefits.

Tax professionals also advise filing estimated payments or reviewing IRS Form 1040-ES to avoid surprises next year.

Delays and Communications

The SSA has already begun notifying eligible recipients via mail, but due to high volumes and recent staffing reductions, some may receive payments before official notices arrive.

The SSA acknowledges the delay and advises beneficiaries to regularly check their My Social Security account for updates and direct deposit confirmations.

Additionally, some individuals have experienced temporary delays in receiving benefits due to errors in bank account information or mailing addresses.

Economic Impact of the Act

While the act is a victory for fairness, it comes at a cost. According to Investopedia, the repeal of WEP and GPO is projected to cost more than $196 billion over time.

This added expense could accelerate the depletion of the Social Security Trust Fund. The latest projections suggest insolvency may occur as early as 2034, instead of the previous estimate of 2035.

Final Advice

If you’re among those benefiting from the Social Security Fairness Act:

• Celebrate the win, but plan ahead.
• Consider talking to a certified tax professional to mitigate any surprise IRS bills.
• Stay updated via the SSA blog and IRS Tax Tools.

While the law marks a long-overdue fix for millions of public service retirees, its ripple effects—especially during tax season—should not be underestimated.

This article has been carefully fact-checked by our editorial team to ensure accuracy and eliminate any misleading information. We are committed to maintaining the highest standards of integrity in our content.