Millions of Americans have had a pleasant surprise in their bank accounts this month — a lump sum deposit of social security benefits not previously paid to them. And the news gets better for this group — their monthly benefits will also see an increase starting in April 2025. These payments are a result of the Social Security Fairness Act, signed into law in January 2025. It repealed the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), which had previously reduced Social Security benefits for public sector workers receiving pensions from non-Social Security-covered employment. This change primarily benefits teachers, firefighters, and police officers, ensuring they receive their full Social Security benefits without reductions.
If you are one of the recipients of these payments, what do you need to do next? And what is the long-term impact of this act on social security solvency?
Benefit recipients will not need to do anything immediately; the lump sum payments and increase in monthly benefit are yours to do with what you’d like. However, there is a tax impact to consider. Depending on recipients' total income, up to 85% of Social Security benefits may be taxable. The IRS allows recipients to either report the full amount in the current year or allocate it to past years to potentially reduce their tax burden. Additionally, these payments could increase Medicare premiums for some beneficiaries due to higher reported income. Reviewing your situation with your MCWS advisor would be a great place to start understanding how your lump sum payment will affect your tax return for 2025.
For all of us, this act does raise concerns about the financial impact on the already strained Social Security system. The repeals of WEP and GPO are projected to cost approximately $196 billion over the next decade to the Social Security Trust Funds which were previously forecasted to face insolvency around 2035. Critics argue that this increased expenditure may accelerate the program's depletion unless additional funding sources are secured.
Supporters of the law argue that public employees were unfairly penalized under the WEP and GPO, and that the repeal restores fairness to the system. They contend that many affected individuals have contributed to Social Security through other jobs and should not have had their benefits reduced due to separate public pensions. The law has received broad bipartisan support, reflecting the widespread acknowledgment of these inequities.
Despite concerns about Social Security’s long-term solvency, the Social Security Fairness Act represents a major victory for public servants who have long advocated for these changes. While its financial impact is significant, policymakers will need to explore further reforms to ensure the stability of the Social Security program in the coming decades.
For more information, Social Security is providing regularly updates here: Social Security Fairness Act: Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) update | SSA
