February 20, 2026, 5:03 a.m. ET
Some congressional members are expressing concerns that the Social Security Fairness Act, signed into law in early 2025, is unfair regarding taxes. This legislation worked to eliminate the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), which had previously reduced benefits for about 3.2 million public sector retirees who also received pension income. The changes, effective retroactively, led to many beneficiaries receiving one-time payments last year, sometimes reaching thousands of dollars by January 2024, with larger monthly benefits set to begin in 2025.
Experts suggest this sudden increase in income likely resulted in many individuals facing higher tax liabilities. To mitigate these potential tax consequences, Representative Lance Gooden (R-Texas) introduced bipartisan legislation earlier this month aimed at exempting retroactive Social Security payments from federal taxable income related to the repeal of WEP and GPO.
Rep. Chellie Pingree, D-Maine, a co-sponsor of the bill, remarked in a news release that the Social Security Fairness Act was genuinely transformative for many Americans, ensuring they received the benefits they were entitled to. However, she emphasized that it was never meant to impose a windfall tax on vulnerable groups like widows or low-income seniors.
How much are the additional taxes?
How Social Security benefits are taxed largely depends on overall income, which includes nontaxable interest and half of the benefits for the particular tax year. Depending on total income exceeding the specified threshold for their filing status, up to 85% of Social Security benefits could be taxable.
- $25,000 if single, head of household, or an eligible surviving spouse
- $25,000 if married and filing separately while living apart from the spouse for the entire year
- $32,000 if married and filing jointly
- If married and filing separately but living with a spouse at any time during the tax year, the threshold is $0.
If filing jointly, couples must combine their income and Social Security benefits when determining how much of their benefits are taxable. It’s crucial to include even a spouse’s income, regardless of whether they received benefits, for accurate calculations.
The Social Security Administration provides tools to help determine the taxability of benefits and the amount.
Jaime Eckels, a certified financial planner, noted that beneficiaries should be mindful not only of the increased taxation on benefits but also the overall implications for their income taxes. “This payment could potentially push someone into a higher tax bracket or IRMAA tier, which could affect Medicare premiums,” he explained.
IRMAA stands for Income-Related Monthly Adjustment Amount and points to additional charges to Medicare Part B and Part D premiums for those with higher incomes.
Will the “Recovery Benefits Tax Exemption Law” pass?
Some financial experts are skeptical about the passage of this tax reform bill. Philip Hulme, owner of Stars and Stripes Financial Advisors, mentioned that he believes the likelihood of any new legislation passing in Congress is relatively low, especially considering last year’s record low number of bills approved.
However, there’s always room for change.
“This might be one of the key strategies lawmakers can employ to garner public support,” he said. “After all, who doesn’t appreciate free money?”
How can beneficiaries reduce their taxes?
Beneficiaries might consider several strategies to minimize their tax burdens. Experts recommend:
- If the retroactive payment makes total income surpass the Social Security tax threshold, the IRS permits individuals to assign the payment to the year it should have been received. There’s no need to amend prior tax returns; just check the appropriate box on the current year’s Form 1040 or 1040-SR.
- Seeking advice from a local Taxpayer Support Center or a certified public accountant could be beneficial, especially regarding avoiding potential increases in Medicare IRMAA. With the extraordinary payments unlikely to be ongoing, individuals may experience a decline in income, which could justify benefits, according to Hulme. Applying for an IRMAA Exclusion might also be a worthwhile option, although the IRS’s response to such new applications remains uncertain.
