A Historic Shift in Social Security Law
On January 4, 2025, a new chapter was written for public service retirees across the country. President Biden signed the Social Security Fairness Act, repealing two of the most controversial rules in Social Security history—the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
If you’re a teacher, firefighter, postal worker, or any public servant who worked in both government and private sectors, this is your moment. You’ve likely felt the pinch from these outdated laws. Now, relief has finally arrived.
What Were WEP and GPO, Anyway?
Let’s break it down:
- WEP reduced Social Security benefits for individuals who received a pension from a job not covered by Social Security (like a state or local government job) but also worked other jobs where they did pay into the system.
- GPO slashed spousal or survivor benefits for people who received a government pension—even if they qualified for benefits through a spouse’s work history.
Imagine Bob, a retired firefighter who later worked at Home Depot and paid into Social Security. Under WEP, his Social Security check got docked. Or Terry, a retired public-school teacher married to someone eligible for Social Security—GPO meant Terry saw her spousal benefit cut down to crumbs.
But now? Bob and Terry just got their retirement rights restored.
What’s Changing for Retirees in 2025?
Thanks to the Social Security Fairness Act:
- Starting January 2024, WEP and GPO are officially dead.
- Beginning February 24, 2025, the Social Security Administration (SSA) started issuing retroactive payments for all the missed increases dating back to January 2024.
- Average monthly benefits are going up by about $360 for those affected.
If you’re eligible, you’ll receive a lump-sum payment and ongoing higher monthly checks. SSA is handling this automatically and will notify you if you qualify—no need to dive into paperwork limbo.
But Wait—How Is That Lump Sum Taxed?
Now here’s the twist: While that extra money feels great, Uncle Sam might still want his cut.
Enter the tax crossroads: Do you report the entire lump sum in the year you receive it, or do you elect to spread it across the years it was meant for?
Two Taxation Choices: One Smart Decision
Option 1: Tax It All This Year
If you go this route, that entire lump sum gets taxed in the year you receive it. For many, this could push them into a higher tax bracket—meaning more of it goes to taxes instead of your wallet.
Option 2: Use the “Lump-Sum Election” Method
This IRS-approved method (outlined in Publication 915) allows you to tax the lump sum as if it were received in the original years it was due—back in 2024 or earlier. The potential tax savings? Significant.
Here’s how it works:
- Recalculate Past Tax Years: Figure out how much of the lump sum would’ve been taxable if received on time.
- Use IRS Worksheets: IRS Pub 915 provides detailed worksheets to guide this.
- Compare Scenarios: Decide if the lump-sum election or full-year method results in a lower tax bill.
- Report Properly: If you choose the lump-sum method, your Form 1040 will need to reflect that election.
While the second option may require more paperwork, it could be well worth the effort—especially for retirees on fixed incomes.
What Should You Do?
Choosing the right tax approach depends on:
- Your current income
- Your tax bracket in 2024
- Whether you qualify for income-based deductions or credits
Let’s say Terry, our former teacher, now lives mostly on a modest pension. If her lump sum pushes her income above certain thresholds, she could lose out on credits like the Senior Tax Credit or healthcare subsidies. The lump-sum election could help avoid that.
Don’t Go It Alone—Let JS Morlu Help
At JS Morlu, our tax professionals don’t just file your taxes—we strategize with you. We help you:
- Compare taxation options
- Use IRS worksheets accurately
- Optimize your outcome based on your entire financial picture
Whether you’re newly retired, still working part-time, or helping a parent navigate their Social Security options, we bring the experience and precision you need.
Your Next Step: Free Social Security Lump-Sum Tax Review
Got a retroactive payment or expect one soon? Don’t let taxes chip away at your long-overdue benefits.
🔹 Book a free consultation
🔹 Get a custom tax impact analysis
🔹 Ensure you keep what you’ve earned
📅 Schedule your session here or call us at 703-594-4944.
Final Thoughts
The repeal of WEP and GPO marks a huge win for America’s public servants. But with every win comes new financial questions. JS Morlu is here to help you answer them with clarity, accuracy, and personalized care.
Because when it comes to your retirement, fairness isn’t just a law—it’s a financial strategy.
