Understanding the new Social Security Fairness Act

The Street

The new Social Security Fairness Act makes big changes to benefits for workers who get pensions. Lisa Greene-Lewis, TurboTax expert and CPA, explains.

Transcript

00:00We're calling all public service workers.

00:08There is a new Social Security Fairness Act in town that was signed by the former president,

00:13and you need to know about it because it's going to affect your tax return.

00:16Lisa Green Lewis, TurboTax expert and CPA is here with us to explain everything.

00:20I love how he got this in under the gun, but at least it's a good thing for workers out

00:25there, right?

00:26Yes.

00:27It eliminates the windfall elimination provision and the government pension offset.

00:33So what those did, if these workers like firefighters, police officers, if they paid into a pension,

00:42which they typically do, but also had a job that paid into Social Security, they were

00:48getting a lower benefit.

00:50But what this Social Security Fairness Act does, it eliminates those provisions and allows

00:57them to get the full benefit.

01:00That's amazing actually, and probably high time.

01:03So now how, so this will affect their 2024 tax return.

01:07So what do they need to know when they start to fill things out?

01:10How does this affect their bottom line?

01:12Yes.

01:13So two things that this Social Security Fairness Act did.

01:19One of them is they're going to get retroactive pay to January 1st, 2024.

01:25So they're going to get a lump sum payment.

01:27And then the second thing it's doing is it's increasing their monthly Social Security.

01:33So the tax implications of that on the lump sum payment, that could make the rest of their

01:41Social Security taxable, because there are thresholds at which your Social Security is

01:47taxable when you're getting other income, like a pension.

01:51So it could possibly make that entire amount taxable.

01:57And then you had mentioned their full benefits.

01:59So their benefits will go up.

02:00So that also could affect the taxability, right?

02:03Yes.

02:04That's something they need to consider.

02:05Right.

02:06So when they're doing their tax returns, they have to be super careful about this.

02:09So now how do they figure this out?

02:11Do they have to crunch these numbers?

02:13Who's figuring out these numbers for them?

02:18With TurboTax, we automatically figure it out for you based on what income you put in,

02:24when you put in the Social Security and your other streams of income.

02:28It's automatically figured out for you.

02:31Or you can just hand your taxes over to our TurboTax Live full service experts so you

02:36don't have to worry about it.

02:38But basically, they don't have to sit down pen and pencil and try to figure out how much

02:43their lump sum payment should be.

02:44No one out there is going to do this for them.

02:47Right.

02:48But they can if they want to know ahead of time.

02:52So it goes by your combined income.

02:54And combined income is your other income that you receive, like from your pensions, then

03:02half of Social Security.

03:05And then depending on what that number is, a certain percentage of your Social Security

03:10is taxed.

03:11Up to 85%.

03:13All right, Lisa, this all sounds great and our police officers and firefighters deserve

03:18this increase.

03:19But when can they actually expect to see money in their wallets and which tax return does

03:24this start to affect?

03:27So there's talk of it going out the end of December of 2025.

03:32But then there has been mention of delays in that.

03:36And then as far as when you claim it, so if you did receive it in December 2025, you would

03:42claim it in on your 2025 taxes, but you also can have a choice.

03:48If your income was lower in 2024, you could claim it in that year.

03:54You're able to make a decision on which year you want to claim it in.

03:59OK, so not surprising, Social Security is complicated.

04:02Make sure you get some help.

04:03But it's in the news.

04:04It'll be talked about.

04:05So pay attention.

04:06Lisa Greene-Lewis, CPA and TurboTax expert, thank you for clarifying all that.

04:11Thank you for having me.

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