Unfair Taxes and the Bill That Aims to Correct Them

The Social Security Fairness Act signed in early 2025 is now unfair, at least when it comes to taxes, according to some representatives in Congress.

The Social Security Administration repealed the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO), which reduced Social Security benefits for about 3.2 million public sector retirees who also receive pensions. The law’s first effective date is January 2024, so many beneficiaries received last year a one-time payment that could reach thousands of dollars and higher monthly benefits, starting in 2025.

That increase in income last year could have resulted in higher taxes for more people, experts say. To help deal with the potential tax bomb, Rep. Lance Gooden, R-Texas, introduced in early February the Bipartisan No Tax on Restored Benefits Act to amend the tax code to exclude Social Security reinstatement payments directly related to the elimination of the WEP and GPO from federal taxable income.

“For tens of thousands of Americans, the bipartisan Social Security Fairness Act was truly transformative, ensuring they receive the benefits they deserve,” said Rep. Chellie Pingree, D-Maine, the bill’s sponsor, in a news release. “But it wasn’t intended to accommodate widows, low-income seniors, and government employees who volunteered for an unexpected tax bill.”

How much are the additional taxes?

How much of a person’s Social Security benefits will be taxed depends on their total income, including tax-free interest such as municipal bonds, and a percentage of their Social Security benefits for the taxable year.

Up to 85% of your Social Security benefits can be taxed depending on whether that combined income is more than the base amount for your filing status.

The basic values ​​based on the filling condition are:

• $25,000 if you are single, head of household, or an eligible living partner
• $25,000 if you are married filing separately and live without your spouse for a year
• $32,000 if married filing jointly
• $0 if you are married filing separately and living with your spouse at any time during the tax year.

If you’re married and filing a joint return, you and your spouse must combine your income and Social Security benefits when you get the taxable portion of your earnings. Even if your spouse did not receive any benefits, you must add your spouse’s income to yours when considering a joint return if any of your benefits are not taxable.

The Social Security Administration provides a tool to help calculate whether Social Security benefits are taxable and, if so, how much.

Despite the higher share of Social Security benefits that are taxable, beneficiaries will also be looking at their overall income tax bracket, says Jaime Eckels, certified financial planner and Wealth Management Partner with Plante Moran Financial Advisors.

“The payments may also put people in a higher tax bracket or IRMMA bracket, which affects Medicare premiums,” she said.

IRMAA stands for Income-Related Monthly Adjustment Amount, which is an additional charge added to Medicare Part B and Part D premiums for people with higher incomes.

Can the ‘No Tax on Repatriated Benefits Act’ pass?

Some experts say they doubt the bill to amend the tax code will pass.

“The chances of anything passing in this Congress are very slim, in my opinion,” said Phillip Hulme, owner of Stars & Stripes Financial Advisors. “I think last year he set a record for the least amount of legislation passed in any class of Congress.”

But again, never say never.

“Perhaps this is one of the few things (politicians) can use to get support,” he said. “After all, who doesn’t like free money?

Can beneficiaries reduce their tax?

People have several options to try to avoid additional taxes. They include, experts say:

• If a retroactive lump sum payment pushes your gross income above the Social Security tax rate, the IRS will allow you to allocate it to the year you should have earned it, Eckels said. You also don’t have to “amend” your tax returns for the previous year. Instead, you check the box on line 6c of Form 1040 or 1040-SR if it reduces the taxable portion of your earnings and pay any taxes you owe from the prior year on your current year’s tax return.
• Contact your local Taxpayer Assistance Center or certified public accountant for guidance on avoiding Medicare IRMAA increases. “Since the income is not expected to continue, they may argue that their income is expected to be reduced and that they may be eligible for the IRMAA exemption,” said Hulme. “An SSA-44 form will need to be filed to claim the exception but since this is a new case, I can’t say for sure what the IRS will decide.” But it’s worth a try, he said.

Medora Lee is a money, markets and finance reporter for USA TODAY. You can find him at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.

This article first appeared in USA TODAY: Social Security Fairness Act: Unfair taxes and the bill that aims to fix them.

Reported by Medora Lee, USA TODAY / USA TODAY

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