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New laws enacted in 2025 may have a big impact on how much Social Security beneficiaries pay in taxes this season.
On Jan. 5, 2025, President Joe Biden signed the Social Security Fairness Act, a law that ended provisions that reduced or eliminated Social Security benefits for more than 2.8 million individuals who have pension income from work that did not require payment of Social Security payroll taxes.
Later that year, on July 4, President Donald Trump signed the “big beautiful” tax package, which includes a new tax deduction of up to $6,000 per eligible senior to help offset taxes on Social Security benefits. Up to 85% of Social Security benefits may still be subject to federal tax, depending on the beneficiary’s income.
Together, those changes will influence the tax liabilities that Fairness Act beneficiaries face this tax season.
“If you’re getting higher benefits because of the Social Security Fairness Act, some percentage of those are going to be taxable,” said Alex Durante, senior economist at the Tax Foundation.
The monthly benefit increases for affected beneficiaries range from “very little” to more than $1,000, according to the Social Security Administration. In addition, affected individuals received retroactive lump-sum payments representing benefit increases to monthly checks from January 2024 onward.
The tax liabilities associated with that extra benefit income may be reduced with the new senior “bonus” deduction, if the recipient qualifies, Durante said.
To qualify for the full $6,000 deduction — or $12,000 if married filing jointly — individuals need to have a modified adjusted gross income of less than $75,000, while couples may have up to $150,000.
“They’re better off because their Social Security benefit went up, and they’re better off because they’re basically getting a bigger deduction,” said Karen E. Smith, a senior fellow at the Urban Institute.
How the Social Security Fairness Act works
President Joe Biden after he signed the Social Security Fairness Act at the White House on Jan. 5 in Washington, D.C.
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The Social Security Fairness Act eliminated two provisions: the Windfall Elimination Provision, or WEP, that reduced Social Security benefits for people with pensions from jobs not covered by Social Security, and the Government Pension Offset, or GPO, that adjusted Social Security spousal or widower benefits for individuals who also receive pension income from jobs where Social Security taxes were not withheld.
Among the more than 2.8 million people affected by those provisions are some state teachers, firefighters and police officers; federal employees covered by the Civil Service Retirement System; and workers covered by a foreign social security system, according to the Social Security Administration.
This change applies only to people who receive pension income based on work that did not include the payment of Social Security payroll taxes, according to the agency. Those individuals also qualify for Social Security benefits based on payroll taxes paid into the program through other work.
Around 72% of state and local public employees were not affected by the law, as they pay Social Security taxes — and therefore will not see a benefit increase, according to SSA.
What beneficiaries should know this tax season
This is the first tax-filing season that Social Security Fairness Act beneficiaries will see those payments in their SSA-1099s, a Social Security Administration spokesperson told CNBC via email. Those tax forms show their Social Security benefit income.
The Social Security Administration has said that as of July, it completed more than 3.1 million payments totaling $17 billion to eligible Fairness Act beneficiaries. The adjustments included higher monthly benefit payments and one-time lump-sum payments.
The lump-sum payments sent under the Social Security Fairness Act are generally taxed as Social Security benefits received during the tax year, and are included in the SSA-1099 statement, the SSA spokesperson said. The SSA-1099 is also sent to the IRS.
Recipients of those retroactive payments may want to consider selecting a box for a “lump-sum election” on this year’s Form 1040 or 1040-SR for seniors, according to Lawrence Pon, a certified financial planner and certified public accountant at Pon & Associates in Redwood City, Calif. Pon is also an enrolled agent, which is a tax license to practice before the IRS.
Beneficiaries who received benefits that were taxable in 2025, including a lump-sum benefit payment for an earlier year, can “reduce the taxable amount” with the lump-sum election, according to the IRS.
The lump-sum election allows beneficiaries to recalculate their taxable benefits for a prior year by subtracting the taxable benefits they previously reported, according to the IRS. The remaining amount is the taxable part of the lump-sum payment to report for 2025.
Using the lump-sum election does not require a taxpayer to adjust an earlier return, nor does it require filing an amended return, according to the IRS.
“If it results in a lower tax, take advantage of it,” Pon said. “If it doesn’t, ignore it. Don’t waste your time.”
Pon’s said his father, who receives a state pension from California, now receives Social Security survivor benefits because the GPO was eliminated.
However, the benefit change was not automatically processed. To access the benefits, Pon’s father visited a Social Security office with proof of his marriage, including past joint tax returns and their wedding album.
If you think you may be eligible for higher benefits under the new law, it’s worthwhile to check, he said.
“There’s probably people who qualify for it and don’t know about it,” Pon said.