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There is no such thing as completely good or positive news, especially if it involves public money, because this factor brings with it in modern life a word that we are never going to get rid of, because as the wise saying goes "There are two things certain in this life, taxes and death".
The US recently ed the Social Security Fairness Act, which eliminates the so-called Windfall Elimination Provision (WEP) and Government Pension Offset (GPO).
These provisions, which no longer exist, reduced or reduced Social Security benefits for more than 3.2 million people who receive a pension for working in something that is not covered by Social Security and therefore did not pay taxes for that concept.
Tax implications of retroactive benefit
It is known that the effective date of the law is retroactive to January 2024, which is why beneficiaries could receive a one-time retroactive payment that has everyone excited, but unfortunately would come with bad news.
Financial experts in the United States warn that this benefit to retirees such as teachers, firefighters, police officers and federal employees covered by the Civil Service Retirement System could have some tax implications, as a significant portion of their Social Security income may be subject to federal taxes, depending on their overall income level.
What should I do if I received the retroactive benefit?
In short, recipients of these payments will need to be mindful of their income status to avoid tax surprises, as this increase could increase the taxable portion of Social Security income as current tax law provides that up to 85% of SS benefits may be subject to tax, depending on the beneficiary's combined income (provisional income).
Such income includes adjusted gross income, tax-exempt interest and half of Social Security benefits, so the increase in benefits under the Social Security Fairness Act is sure to affect those numbers in many cases, so it is suggested to be very aware.