14 May THE SOCIAL SECURITY FAIRNESS ACT IS FAIR TO SOME – BUT NOT TO OTHERS
Many teachers, firefighters, police officers and people who received a pension due to work not covered by Social Security may receive (or have received) a Social Security benefit increase pursuant to Social Security Fairness Act signed by former President Biden on January 5, 2025 which became effective on February 25, 2025. President Trump has desired implementation as quickly as possible although cuts in Social Security employees may delay payments for some. An estimated 3.2 million people who received a pension on work not covered by Social Security have received or will receive a benefit increase (not those with only Social Security covered employment where they paid Social Security taxes). Many have already received a retroactive lump sum benefit (back to January 2024) in addition to a monthly increase in their monthly Social Security benefit (from a nominal amount to over a $1000 a month depending on the amount of pension, etc.). It is anticipated that all beneficiary records will be updated by November 2025.
Prior to the law change, the Windfall Elimination Provision (WEP) had a formula that didn’t consider all lifetime earnings of the workers who had both a pension not covered by Social Security and another job covered by Social Security. The formula was used to adjust Social Security benefits for those who received “non-covered pensions” (who didn’t pay into Social Security) and qualify for Social Security as a result of working another job that is covered by Social Security (withholding Social Security taxes unlike a non-covered pension). The original intent of Windfall Elimination Provision and Government Pension Offset was a cost-cut effort to keep funds available for Social Security for a longer period by preventing double dipping of non-covered pension recipients from getting higher Social Security benefits by using the formula. In practice it reduced the benefits of low-income and middle-income earners. Social Security is usually based on an individual’s full earnings. A larger portion of prior earnings goes to lower paid workers.
The Government Pension Offset (GPO) affected spouses of retired and disabled workers and widows and widowers of deceased workers. GPO reduced Social Security for those entitled to spousal benefits of retired employees, disability benefits and widow’s benefits (approximately 2/3 reduction to the full amount of the spousal benefit).
So, if one got only a teacher’s pension (not covered by Social Security) and had another job that was covered by Social Security, then prior to passage of the act, that person couldn’t collect Social Security, now they can. This could also result in an increase of Social Security for a spouse or a widow or widower. Previously under GPO, the spousal and survivor benefits were reduced or eliminated. The Social Security Fairness Act eliminated WEP and GPO so that full lifetime earnings are considered to be “fair”.
Sometimes this could be unfair. Due to erroneous advice by the Social Security Administration prior to passage of the Social Security Fairness Act, some eligible beneficiaries are only to receive 6 months of back-pay instead of a full year under the new law. Pursuant to the Social Security Administration’s protective filing rules, if an individual (typically widows and widowers) previously made an inquiry about benefits and was wrongly advised not to file, the application could still be considered as “open”. If “open”, retroactive payments would be calculated from the original inquiry date resulting in Social Security Administration’s 6-month limit when processing retroactive claims even if they were told not to apply.
Normally when one spouse dies and both are collecting Social Security, the widow gets the higher of the two incomes (i.e., if surviving spouse had $2000 of monthly Social Security income and the deceased spouse had income of $3000 per month, then the surviving spouse would receive his or her income of $2000 plus the $1000 difference in income of the deceased spouse. However, if the surviving spouse had $3000 of income and the deceased spouse had income of $2000, then the surviving spouse would get none of the deceased spouse’s Social Security income.
The retroactive payment under the Social Security Fairness Act could potentially increase your income tax liability since your income is increased. Higher Medicare B & D premiums are also possible due to increased income or retiree benefits (including spousal benefits).
The retroactive payment could impact those on means-tested Medicaid programs although the government permits a period of time before the spenddown. The increase in Social Security income could also result in some losing Medicaid as some states (including Texas) have a monthly income cap (presently $2901 gross). Those on such a program may need to immediately create a qualified income (“Miller”) trust to retain eligibility. Furthermore, it could impact the total countable resources that could be kept from spend down by a spouse pursuant to spousal prevention from impoverishment laws which is based on non-countable resource income such as Social Security. Thus, the Act is sometimes positive and sometimes detrimental.
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