Understanding the new Social Security Fairness Act (TV-PG; 4:18)
Lisa Greene-Lewis, TurboTax expert and CPA, talks about what the Social Security Fairness Act does for workers with pensions, and the tax implications they should know about. Watch the video above or read the transcript below.
Video transcript:
Tracy Byrnes: Calling all public service workers: There is a new Social Security Fairness Act in town that was signed by the former president. And you need to know about it because it’s going to affect your tax return. Lisa Greene-Lewis, TurboTax expert and CPA, is here with us to explain everything. I love how he got this in under the gun, but at least it’s a good thing for workers out there, right?
Lisa Greene-Lewis: Yes, it eliminates the windfall elimination provision and the government pension offset. So, what those did, if these workers — like firefighters, police officers — if they paid into a pension, which they typically do, but also had a job that paid into Social Security, they were getting a lower benefit. But what this Social Security Fairness Act does, it eliminates those provisions and allows them to get the full benefit.
Tracy Byrnes: That’s amazing, actually, and probably high time. So now how — so this will affect their 2024 tax return? So what do they need to know when they start to fill things out? How does this affect their bottom line?
Lisa Greene-Lewis: Yes, so two things that this Social Security Fairness Act did. One of them is: they’re going to get retroactive pay to January 1, 2024. So they’re going to get a lump sum payment. And then the second thing it’s doing is it’s increasing their monthly Social Security.
So the tax implications of that on the lump sum payment—that could make the rest of their Social Security taxable. Because, you know, there are thresholds at which your Social Security is taxable when you’re getting other income like a pension. So it could possibly make that entire amount taxable.
Tracy Byrnes: And then you had mentioned their full benefits. So their benefits will go up. So that also could affect the taxability, right?
Lisa Greene-Lewis: That’s something they to consider.
Tracy Byrnes: Right. So when they’re doing their tax returns, they have to be super careful about this. So now, how do they figure this out? Do they have to crunch these numbers? Who’s figuring out these numbers for them?
Lisa Greene-Lewis: So with TurboTax, we automatically figure it out for you based on what income you put in. When you put in the Social Security and your other streams of income, it’s automatically figured out for you. Or you can just hand your taxes over to our TurboTax Live full service experts so you don’t have to worry about it.
Tracy Byrnes: But, basically, this — they don’t have to sit down, pen and pencil, and try to figure out how much their lump sum payment should be? Someone out there is going to do this for them?
Lisa Greene-Lewis: Right, but they can, if they want to know ahead of time. So, it goes by your combined income. And combined income is your other income that you receive, like from your pensions, then half of Social Security. And then depending on what that number is, a certain percentage of your Social Security is taxed, up to 85%.
Tracy Byrnes: All right. Lisa, this all sounds great, and our police officers and firefighters deserve this increase. But when can they actually expect to see money in their wallets? And which tax return does this start to affect?
Lisa Greene-Lewis: So there’s talk of it going out the end of December of 2025, but then there has been mention of delays in that. And then as far as when you claim it, so if you did receive it in December 2025, you would claim it on your 2025 taxes. But you also can have a choice.
If your income was lower in 2024, you could claim it in that year. You’re able to make a decision on which year you want to claim it in.
Tracy Byrnes: OK, so not surprising, Social Security is complicated. Make sure you get some help, but it’s in the news. It’ll be talked about, so pay attention. Lisa Greene-Lewis, CPA and TurboTax expert, thank you for clarifying all that.
Lisa Greene-Lewis: Thank you for having me.
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Editor’s Note: The content was reviewed for tax accuracy by a TurboTax CPA expert for the 2024 tax year.
