For decades, the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) reduced Social Security benefits for millions of public sector employees, who worked in jobs not covered by Social Security. These provisions have long been criticized as unfair and overly broad, and after years of debate, recent legislation finally repealed them.
What Were the WEP and GPO?
The Windfall Elimination Provision (WEP), enacted in 1983, reduced Social Security benefits for workers who also received a pension from employment not covered by Social Security. Its purpose was to adjust benefits to reflect that these workers hadn’t paid Social Security taxes on all of their earnings.
The Government Pension Offset (GPO), passed in 1977, affected spouses and survivors who received a government pension. It reduced Social Security spousal or survivor benefits by two-thirds of the government pension amount, often leaving retirees with little or no spousal benefit—even if they had earned it through a spouse’s contributions.
Why the Change?
The repeal of WEP and GPO comes after years of bipartisan efforts and sustained advocacy by public employee unions, retiree associations, and affected individuals. Opponents of the provisions argued they:
- Disproportionately harmed lower- and middle-income retirees.
- Discouraged people from entering public service jobs.
- Penalized workers who divided their careers between covered and non-covered employment.
The elimination aims to simplify the Social Security system and treat all retirees more equitably.
What Does Repeal Mean for Retirees?
For many, this change will mean hundreds—or even thousands—of additional dollars each month. The repeal could have a substantial impact on public sector employees that are already receiving Social Security Benefits.
Because the repeal was retroactive to the beginning of 2024, impacted retirees will receive lump sum payments representing the additional benefits they would have received from January 2024 to the current period. Depending on the situation, these payments could be sizable. We have seen instances where this lump sum payment exceeds $10,000, $20,000 or even $50,000!
Additionally, the retiree should see a larger monthly Social Security benefit going forward. The amount of this additional payment will again vary based on the situation.
How Will These Additional Payment Impact Me for Tax Purposes?
While the taxation of Social Security is complicated, it is safe to say that the receipt of these additional payments, especially a large lump sum retroactive payment, will have a tax impact for most retirees. However, this impact will vary depending on the circumstances.
What Should I Do Now to Avoid an Unexpected Tax Balance Due Next Spring?
Again, the taxation of Social Security is complicated and will depend on the situation. For some taxpayers, it may be advisable to make an estimated payment, at least to cover the additional tax on the retroactive benefits. Since each beneficiary’s situation is different, however, we would advise you to reach out to your tax preparer to assist you with determining the appropriate course of action.
