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It's NOT
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We've found that it is not just the numbers that drive planning...
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Have You Received $$$ from Social Security this Year?

July 17, 2025
With the recent passage of the Social Security Fairness Act, more people than ever are receiving Social Security retirement benefits – including some who never thought they would! This truly has been a life-changing event for some people. However, this unexpected windfall can also lead to some unexpected tax consequences.

Many beneficiaries of the Social Security Fairness Act (SSFA) received retirement benefits for the first time and may be assuming that federal and state taxes (if applicable) are automatically being withheld. Guess again. Because the SSFA was retroactive to January 1, 2024, most impacted people received a lump-sum payment in addition to their new or increased monthly benefits. Most likely, Medicare premiums have been deducted, but not taxes. That’s a lot of new income with no income tax withholding!

The good news is that your Social Security benefits are not 100% taxable, as are other forms of income, such as earned income, pensions, and interest (there are some exceptions). To determine how much of your Social Security benefits will be taxed, you need to identify your combined income. According to the IRS, this is your Adjusted Gross Income (AGI) plus any non-taxable interest and half of your Social Security benefit for a calendar year. Once you have this number, take away certain deductions and exclusions to arrive at your combined income. From here, it is a tiered system that determines how much of your benefit is taxable.

  • If your combined income is under $25,000 (single) or $32,000 (joint filing), there is no tax on your Social Security benefits.
  • If your combined income is between $25,000 and $34,000 (single) or $32,000 and $44,000 (joint filing), up to 50% of benefits can be taxed.
  • If your combined income is above $34,000 (single) or above $44,000 (joint filing), up to 85% of benefits can be taxed.
Given that we are more than halfway through 2025, you may want to review what this windfall is doing to your overall tax liability to avoid a big surprise when you file your 2025 return next year. This can be done by checking with your tax preparer or running a tax projection for 2025 yourself. The current quarterly interest rate on the amount underpaid is 7% and is based on the period in which it was due. If the calculation determines you will be under withholding your tax liability, you have some options. First, you can request that federal income taxes be withheld from your monthly payment. This can be done in your Social Security account online or by completing Form W-4V and submitting this to your local Social Security office. You can elect to withhold a rate of 7%,10%,12% or 22%. The downside is that you may not be able to withhold state tax from your Social Security benefit. A second option is to make Quarterly Estimated Income Tax Payments. You can do this for federal and state. If you did receive a large lump sum at the beginning of the year, it may make sense to make an estimated payment now to minimize any penalty that may be assessed due to the timing of when this lump sum was received. The next estimated payment date for the 3rd quarter is September 15th, and January 15, 2026, for the 4th quarter. Lastly, you could adjust the amount of your withholding from other sources where you currently have taxes being withheld.

Finally, if you, a deceased or ex-spouse, had been subject to the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO), and you weren’t aware of the Social Security Fairness Act, reach out to the Social Security Administration to see if the SSFA has or will have a positive impact on your situation. If you do not have an account with Social Security, they may not know you exist and are entitled to a Social Security retirement benefit.

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