This January, the Social Security Fairness Act (SSFA) was signed into law, repealing the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). These repealed provisions had previously reduced Social Security benefits for some public-sector employees. The WEP reduced benefits by applying a modified Social Security benefit formula for individuals who also received pensions from employment not covered by Social Security. The GPO reduced spousal or survivor benefits for those receiving government pensions.
With the removal of the WEP and GPO, the retired public-sector employees who were impacted will see their monthly Social Security benefits increase going forward. Additionally, the SSFA also included a provision to permit a one-time retroactive payment of benefits for the prior 15 months, allowing eligible individuals to receive compensation for past reductions in their benefits. The Social Security Administration began issuing these payments in January 2025 and is currently working through the cases of approximately 3 million eligible individuals.
Tax Implications of Lump-Sum Payments
If you receive a lump-sum payment in addition to your monthly Social Security payment, your annual Form SSA-1099 will contain a breakdown of the payout by tax year. Please include this portion with the SSA-1099 when you provide us with your tax documents for 2025.
Depending on your individual circumstances, there may be tax implications to these payouts. For most recipients, the income will be at least partially taxable and may represent a significant increase in annual income, potentially impacting your tax liability. If you would like us to recalculate your estimated tax payments or discuss the tax implications, our team is available to assist you. Services are billed at our regular hourly rates.
Avoiding Scams and Fraudulent Activity
As with any major law change or benefit adjustment, there are heightened risks of fraud targeting beneficiaries. We urge you to be vigilant and not respond to unsolicited calls, emails, or letters requesting information, payment, or offering to expedite benefits associated with the SSFA. The Social Security Administration does not require additional information or payment to process these retroactive payments or adjust monthly benefits.
To stay informed and protect yourself, visit the official SSA website and access their FAQ page for updates and detailed information at https://www.ssa.gov/benefits/retirement/social-security-fairness-act.html?
If you have further questions or require tax planning assistance, please do not hesitate to contact us at our Leesburg or Warrenton office.