Originally published on FedSmith.com, authored by John Mason.
The Social Security Fairness Act, signed into law on January 5, 2025, and applied retroactively to January 2024, created a major shift in retirement income for many federal, state, and local government retirees. Those who are covered by the Civil Service Retirement System (CSRS) and other retirees with pensions from non–Social Security covered employment saw long-standing benefit reductions disappear almost overnight.
For many households, this meant an increase in their own Social Security retirement benefit, spousal benefits, or survivor benefits (You generally receive the highest benefit you’re eligible for, rather than stacking multiple full benefits). But as is often the case, a sudden increase in income can add a new layer of planning complexity, including unintended tax consequences.
If you’re a CSRS retiree or otherwise impacted by these recent provision rollbacks, here’s what you need to know for the tax year ahead.
Windfall Elimination Provision (WEP)
Prior to 2025, the Windfall Elimination Provision (WEP) reduced Social Security retirement benefits for individuals who also received a pension from work not covered by Social Security taxes. Most commonly, this applied to employees with CSRS pensions. Because CSRS employees do not pay into Social Security during their government careers, the formula used to calculate their Social Security benefit was adjusted downward. (Note: CSRS Offset employees do pay into Social Security, but WEP could still apply to them.)
WEP only affects those with non-covered pensions who have also earned Social Security benefits through other employment. It primarily affected retirees who qualified for Social Security based on a second career or other supplemental employment where they paid into the Social Security system. Even though they had earned enough credits to qualify, their benefit was often reduced (sometimes substantially) as a result of the WEP formula. WEP was eliminated for those with 30 years of substantial earnings.
With WEP now eliminated, those reductions are gone. Affected retirees now receive their full calculated Social Security benefit based on their covered earnings record.
Government Pension Offset (GPO)
The Government Pension Offset (GPO) reduced or eliminated Social Security spousal and survivor benefits for individuals receiving a pension from non-covered government employment, including CSRS. As a result, many CSRS retirees were unable to collect Social Security benefits based on a spouse’s record, even when they would otherwise qualify.
Here’s how the old formula worked: Multiply your CSRS pension by two-thirds, and that amount would reduce your Social Security spousal or survivor benefit. For instance, if you had a $55,000 CSRS pension, two-thirds would be approximately $36,850. If your potential survivor benefit was $36,000, it would be fully offset and eliminated.
Now, with GPO eliminated, you can collect your full $55,000 CSRS pension and the $36,000 survivor benefit. With GPO eliminated, those spousal and survivor benefits are now fully available, provided a retiree applies and meets eligibility requirements.
CSRS Retirees Saw Increased Income in 2025
When WEP and GPO were eliminated, many retirees began receiving meaningful income increases beginning in 2025. These increases generally showed up in three ways:
- Higher personal Social Security retirement benefits (WEP eliminated)
- Newly available or increased spousal benefits (GPO eliminated)
- Newly available or increased survivor benefits (GPO eliminated)
For retirees who were receiving reduced benefits, adjustments were applied retroactively. For others, new benefit opportunities became available for the first time.
Many impacted retirees (those receiving CSRS or other non-covered pensions) experienced an increase in monthly income throughout 2025. In some cases, this included large lump-sum catch-up payments. WEP benefits began increasing in early to mid-2025, so many received a lump sum covering 2024 and part of 2025.
Additional Income CSRS Retirees Received in 2025
For those previously affected by WEP, Social Security benefit corrections were generally automatic. Retirees already receiving benefits saw their payments recalculated and received back pay from January 2024 onward (or to their benefit start date, if later). Those who have not yet retired but would have been impacted by WEP can now review their Social Security statement and trust that the numbers they see are accurate. Previously, the statement would show the non-WEP-adjusted number, and we used to say, “Your statement is lying to you.”
That is no longer the case.
Based on our review, impacted retirees received an average monthly increase of about $300 to $500. When combined with retroactive payments, some retirees received $10,000 or more in additional income during 2025.
Unlike WEP adjustments, GPO corrections were not always automatic; potentially affected retirees often had to apply to receive spousal or survivor benefits. The Social Security Administration has provided guidance on this process here.
Those already receiving their own Social Security benefit could submit a spousal or survivor benefit application once GPO was removed. If they were older than full retirement age, they could backdate that application by up to six months. Those younger than full retirement age can still apply, but they cannot backdate their application.
The important thing is to apply for benefits. Note that you cannot apply for survivor benefits online. If you’re denied and you believe you’re eligible, don’t give up. Schedule a meeting with a Social Security representative in person.
Some Retirees Are Missing Out on Owed Benefits
While most retirees affected by WEP were automatically adjusted, those affected by GPO were often not.
This is an important distinction, since Social Security cannot pay a spousal or survivor benefit if no application has been filed. Even now that eligibility has broadened, the system generally does not initiate those payments automatically.
We believe many CSRS and state pension retirees are now eligible for benefits but are not receiving them because they have not yet applied. In practice, we have seen multiple cases where income increased by $1,000 or more per month once the proper application was submitted. The highest new monthly spousal benefit we observed in 2025 was $1,791.50, representing more than $21,000 in additional income per year.
Considerations for Receiving Additional Income
While a higher income is beneficial for retirees, it can trigger unintentional financial and tax consequences.
Medicare Part B Premiums
Medicare Part B (medical insurance) premiums are income-tested under the IRMAA (Income-Related Monthly Adjustment Amount) rules, meaning higher income can result in higher premiums.
Importantly, Medicare uses a two-year lookback period when setting premiums. That means 2027 Medicare premiums are based on 2025 adjusted gross income. A one-time spike in income from retroactive Social Security payments could push some retirees into a higher premium bracket.
2025 was a unique year because it included both a permanent benefit increase and potential back pay for retroactive months. These two components carry different IRMAA implications. The lump sum back pay could push 2025 income above an IRMAA threshold, triggering a higher Medicare premium in 2027, even if the new monthly benefit amount alone would not. The permanent increase, on the other hand, could result in either a one-time IRMAA adjustment in 2027 or an ongoing higher premium tier, depending on where the new benefit lands relative to income thresholds.
Additionally, some clients who were receiving their own WEP-adjusted benefit and had an existing application on file received retroactive payments back to their initial benefit start date. Because Social Security deems you to have applied for the highest benefit available, these individuals were effectively switched to their spousal benefit and may have received additional back pay as a result.
The good news is that even with higher premiums, most households still come out ahead since (in most cases) the Social Security increase exceeds the additional Medicare premiums.
If your Social Security benefits have increased, review your IRMAA notices carefully (and remember that not everyone will receive an IRMAA letter). You can file Form SSA-44 if you’d like to appeal the premium increase. We should note that currently, there isn’t a specific block on the form that fits this situation perfectly. We plan to work with affected clients starting in 2027 to determine whether this appeal process is successful.
Tax Credit and Deduction Eligibility
Higher Social Security income also increases adjusted gross income, which influences many parts of the tax return beyond just tax owed.
We have seen cases where the additional income reduced or eliminated eligibility for:
- Certain tax credits
- Roth IRA contributions
- Medical expense deductions (due to AGI thresholds)
- Charitable deduction efficiency
- Age-based or senior deductions
- Other phased-out tax benefits
In short, the additional income does impact your tax return and, in turn, impacts other areas of your financial plan.
Preparing for the 2026 Tax Year
Because 2025 included both benefit increases and, in some retirees’ cases, retroactive payments, it may not be a reliable baseline for future planning.
Increased income increases your taxes, period. However, this is also complicated by recent tax law changes. It may be difficult to isolate the exact impact because multiple things changed: your income and the tax code. Consider preparing a 2026 projection before making estimated payments. Without retroactive lump sums included this year, or with a full year of higher monthly benefits, the numbers may look different.
Even if you received a refund for last year’s taxes, consider running a projection to confirm that withholding and estimated payments remain aligned with your expected liability.
For 2026 and beyond, you may find it helpful to request withholding directly from your CSRS, FERS, or military pension rather than relying solely on quarterly estimated payments. You can also have taxes withheld on Social Security, and you can now set this up online (previously it required a form). Note that Social Security withholding has limited percentage options, whereas pension withholding allows you to specify exact dollar amounts.
Also worth noting: most states don’t tax Social Security benefits, but some do. If you’re in one of those states, review your state tax projections as well.
An automatic withholding can be easier to manage from a cash flow perspective, and it reduces the risk of underpaying (which may result in tax penalties). Here’s an important benefit of withholding: all withholding payments are deemed to have been made since January 1st. Therefore, you can’t be penalized for not paying on time. Estimated tax payments, on the other hand, are due at specific dates, and if you miss one, you could still be penalized even if your total at the end of the year was correct.
Remember: you don’t have a financial plan if you don’t have a tax plan.
Tax planning is a year-round activity. It happens during the year and ends on December 31st. You should know the results of your April 15, 2027, filing by December 31, 2026. Tax planning is forward-looking. Filing a tax return and hoping for the best is tax reacting, not planning. Filing a 1040 is looking in the rearview mirror and really isn’t that helpful. It should just be an accounting of what you already planned to happen.
The elimination of GPO and WEP is a welcome change for federal and state employees across the country, as it resulted in substantial, lasting increases to retirement income in 2025. As you consider a tax strategy for 2026 (and future years), take into account what strategies can help offset an increase in taxable income, including Roth conversions, tax loss harvesting, charitable giving, and more.
This information is for educational purposes only and should not be considered personalized financial advice. Please consult with a qualified financial advisor regarding your specific situation.