Total Social Security Benefits Can Cause Surprising Tax Bills

digitalplatform.g@gmail.com 2 weeks agoLast Updated: February 13, 2026

0 0 3 minutes read

Total Social Security Benefits Can Cause Surprising Tax Bills

A bipartisan “fix” to Social Security benefits for public sector retirees could result in a big tax hit for those Americans. Lawmakers are running around the clock before the tax is due on April 15.

The Social Security Administration Act (SSFA), passed by Congress in late 2024, provided larger lump sum payments and higher monthly benefits to millions of public sector retirees covered by certain pensions who received little or no Social Security benefits. Those back payments started coming out in February of last year, and recipients began receiving higher monthly checks starting with their March benefits.

While this was welcome news to the recipients, here’s the catch: The amount was based on payments that should have been made over several years, an average of $6,710, according to the Social Security System. The IRS requires taxes on those payments to be paid in the year they are received, which means some retirees may be in for an unpleasant surprise when they file their tax returns this year.

The new proposal seeks to protect beneficiaries from large tax liabilities incurred by such payments. The No Tax Repatriation Act, introduced in February, will create a one-time carve-out to eliminate gross income tax payments.

Rep. Lance Gooden (D-TX), who introduced the bill, said it would protect retirees from what he described as an “unexpected, steep tax burden” brought on by the SSFA. The bill “makes sure they keep every dollar of their rightfully earned benefits,” Gooden said in a statement.

The law has been adopted by the House Ways and Means Committee; its future and possible timeline for passage are uncertain, but it is important to note that the Social Security Act passed by a wide bipartisan margin.

The latest plot twist in the Social Security drama

Taxes on Social Security have long been a hot-button issue, but the topic has become more prominent recently for several reasons. In the 2024 campaign, President Donald Trump promised to eliminate the tax on Social Security benefits for retirees.

He couldn’t deliver, but his pledge did go into the “super bonus” included in the One Big Beautiful Bill, or OBBB, passed by Congress last year. This temporary provision allows people age 65 and older who earn less than $75,000 ($150,000 for couples) to claim an additional $6,000 tax deduction between now and 2028.

The tax structure for Social Security benefits was long and simple even before the OBBB and the Social Security Fairness Act.

While retirees must pay income taxes from sources including part-time jobs, interest and 401(k) withdrawals, Social Security has been taxed differently, with retirees earning less than $25,000 ($32,000 for couples) paying no tax at all on their benefits. (In addition, only nine states still tax Social Security benefits.) For high-income earners, both a percentage of benefits are subject to federal tax and the amount of the tax is adjusted based on income.

The law introduced earlier this year by Sen. Ruben Gallego (D-AZ) would simplify tax preparation for retirees by completely eliminating federal taxes on Social Security benefits. Currently, about 40% of Social Security recipients pay at least some tax on those benefits, according to the agency.

“Trump said he ended the Social Security tax. My bill does that,” Gallego said in a statement announcing the You Earned It, You Keep It Act.

Gallego has proposed making up for the loss of tax revenue by increasing Social Security payments, which some say unfairly benefits high earners. “The super rich don’t pay into the system at all,” he said.

Lawmakers are faced with a future funding crisis

The idea of increasing or even eliminating the payroll tax has been floated over the years as a way to help stabilize the long-term solvency of the nation’s retirement system.

Two trust funds currently supplement the money the government takes to pay Social Security benefits. If lawmakers don’t act, that money will run out by 2032, a new Congressional Budget Office report warns. That’s ahead of previous estimates. If trust funds are reduced, this will result in an automatic reduction in benefits of around 20% under current law.

Some expressed concern that eliminating taxes on SSFA lump sum payments would contribute to this erosion. “This legislation severely overburdens Social Security’s finances and will increase the size of any benefit cuts or tax increases needed to reach a deal,” said Karen Smith, senior director at the Urban Institute, in an email.

One analysis estimated that removing the cap entirely could make up for as much as 73% of Social Security’s projected shortfall — without any other adjustments or reductions in benefits.

Gallego’s bill would have raised the rate from $176,100 to $250,000. (The cap, adjusted for inflation, rises to $184,500 in 2026.) At that high level, the money collected would be enough to keep Social Security fully funded through 2058, Gallego said. Although it falls short of repealing the ban entirely, the legislation has so far not made it out of committee.