What to know for 2025 tax season

New laws taking effect in 2025 could have a big impact on how much taxes Social Security beneficiaries will pay this season.

On January 5, 2025, President Joe Biden signed the agreement Social Security Fairness ActA law that ends provisions that reduce or eliminate Social Security benefits for more than 2.8 million people who earn retirement income from jobs that do not require the payment of Social Security payroll taxes.

Later that year, on the Fourth of July, President Donald Trump signed “Big beautiful” tax package that includes a new tax credit of up to $6,000 per eligible senior to help offset taxes on Social Security benefits. Depending on the beneficiary’s income, up to 85% of Social Security benefits may still be subject to federal tax.

All of these changes will impact the tax liabilities Fairness Act beneficiaries face this tax season.

“If you get higher benefits Some of that will be taxable because of the Social Security Fairness Act,” said Alex Durante, senior economist at the Tax Foundation.

Monthly benefit increases for affected beneficiaries range from “very little” to more than $1,000, according to the Social Security Administration. Additionally, affected individuals received retroactive lump sum payments representing benefit increases in monthly checks starting in January 2024.

Tax liabilities associated with this extra benefit income could be reduced by the new senior “bonus” deduction if the recipient qualifies, Durante said.

To qualify for the full $6,000 deduction (or $12,000 if married filing jointly), individuals must have modified adjusted gross income. less than $75,000couples can have up to $150,000.

“They’re better off because their Social Security benefits have increased, and they’re better off because they basically get a bigger cut,” said Karen E. Smith, a senior researcher at the Urban Institute.

The Social Security Fairness Act eliminated two provisions: Provision for Elimination of Unexpected Drawdownsor WEP reduced Social Security benefits for people who receive pensions from jobs not covered by Social Security, and State Pension Offsetor GPO adjusted Social Security spousal or survivor benefits for individuals who earn retirement income from jobs for which Social Security taxes are not withheld.

The more than 2.8 million people affected by these provisions include some public teachers, firefighters and police officers; Federal employees covered by the Civil Service Retirement System; and workers covered by a foreign social security system, according to the Social Security Administration.

According to the agency, this change applies only to people receiving retirement income based on work that does not involve paying Social Security payroll taxes. These individuals are also eligible for Social Security benefits based on payroll taxes paid into the program through other jobs.

About 72% of state and local public workers are not affected by the law because they pay Social Security taxes and therefore will not see an increase in benefits, according to the SSA.

This is the first tax filing season when Social Security Fairness Act beneficiaries will see these payments on their SSA-1099s, a Social Security Administration spokesperson told CNBC via email. Them tax forms show Social Security benefit income.

The Social Security Administration said it had completed more than 100 as of July. 3.1 million payments A total of $17 billion to Affordable Fairness Act beneficiaries. The adjustments included higher monthly benefit payments and one-time lump sum payments.

Lump sum payments sent under the Social Security Fairness Act are generally taxed as Social Security benefits received during the tax year and are included on the SSA-1099 return, an SSA spokesperson said. SSA-1099 is also sent to the IRS.

Recipients of these retroactive payments may consider selecting a box for “cluster payment election” on this year’s Form 1040 or 1040-SR for seniors, according to Lawrence Pon, a certified financial planner and certified public accountant at Pon & Associates in Redwood City, California. Pon is also a registered agent with a tax license to practice with the IRS.

According to the IRS, beneficiaries who receive taxable benefits in 2025, including a lump sum benefit payment for an earlier year, can “reduce the taxable amount” with the lump sum payment election.

According to the IRS, the lump sum payment allows beneficiaries to recalculate their taxable benefits for the prior year by subtracting the taxable benefits they previously reported. The remaining amount is the taxable portion of the lump sum payment to be reported for 2025.

According to the IRS, exercising the lump sum election does not require the taxpayer to amend an earlier return or file an amended return.

“If it results in a lower tax, take advantage of it,” Pon said. “If not, ignore it. Don’t waste your time.”

Pon said her father, who received a state pension from California, now receives Social Security survivor benefits since the GPO was repealed.

However, the benefit change was not automatically processed. To qualify for benefits, Pon’s father visited a Social Security office with proof of his marriage, including past joint tax returns and wedding albums.

If you think you may qualify for higher benefits under the new law, it’s worth checking, he said.

“There are probably people who qualify and don’t know it,” Pon said.