Making Sense of the Social Security Fairness Act

Who is affected by the Social Security Fairness Act?

The Social Security Fairness Act primarily affects individuals receiving a government pension based on earnings not subject to Social Security taxes. This group includes teachers, firefighters, police officers and other public safety employees in most states, which the Social Security Administration reports to be about 28% of all government workers. These workers do not earn Social Security benefits but typically receive a separate pension upon retirement.

What did the Social Security Fairness Act change?

The Social Security Fairness Act repealed two key rules, retroactively applying to benefits earned January 2024 and later:

• The Windfall Elimination Provision (WEP) previously reduced benefits for these workers that were additionally receiving a pension from a job exempt from Social Security taxes.
• The Government Pension Offset (GPO) reduced or eliminated spousal Social Security benefits for these workers.

What is the impact of the Social Security Fairness Act on retirees?

The Social Security Fairness Act impacts retirees in two ways:

• Retroactive payments: Affected retirees who earned benefits January 2024 or later will be eligible for a retroactive payment to recover benefits reduced under the WEP and GPO.
  • Since benefit payments are paid the month after they are earned, this means benefits received in January 2024 would not be eligible, as they were earned in December 2023.
  • The SSA began issuing retroactive payments beginning the last week in February and will continue to do so through March. These payments will be deposited into the same account that past benefits have been paid.
  • It’s important to note that the SSA has not addressed the taxability of these payments. Recipients should consider these payments as taxable income in 2025.
• Increased monthly benefit payments: Beginning with benefits earned in March 2025, affected retirees should anticipate a larger monthly benefit payment, as benefits will be recalculated to remove the impact of the WEP and GPO. These adjusted payments will first be delivered in April 2025.
  • Individuals can expect to receive a letter explaining these changes, although retroactive payments may be deposited prior to delivery of the letter.

What should affected retirees do now?

There are a few things you can do to prepare:

• Review your mailing address and direct deposit information on file with the SSA.
• If you’re now eligible for a spousal benefit as a result of these changes but have not yet filed, you’re encouraged to apply for benefits now.
• If you or your spouse is paying a Medicare premium directly, continue paying to ensure continued coverage. Once your increased Social Security benefit begins, your Medicare premium will be automatically deducted from your benefit. You may request stoppage of your Medicare payment via Medicare Easy Pay or your bank’s online bill payment process. Visit the SSA’s resource page on the Social Security Fairness Act for more information.
• For impacted individuals who have not yet claimed, connect with your Baird Financial Advisor, who can conduct a Social Security analysis to determine when to best claim your benefit.