Restored Social Security benefits could get tax break under new bill

A newly introduced bill would prevent some public sector retirees from being hit with a tax bill after they were made eligible for Social Security benefits last year.

The bipartisan bill, known as the No Tax on Restored Benefits Act, was introduced by Rep. Lance Gooden, R-Texas, and would create a gross income tax exclusion for the retroactive, lump sum payments of Social Security benefits paid to certain public sector retirees on pensions who previously had their benefits reduced or eliminated because they didn't pay Social Security taxes while working. 

It follows last year's enactment of the Social Security Fairness Act, which allowed for the retroactive benefit payments to covered retirees.

"First, the federal government shortchanged public servants by withholding the Social Security benefits. Now, Washington is trying to tax those benefits," Gooden told FOX Business. "It's a slap in the face to teachers, firefighters, law enforcement officers, and more who devoted their careers to serving our communities. The No Tax on Restored Benefits Act finally ends the mistreatment of our public-sector retirees."

SOCIAL SECURITY PAYMENTS TO INCREASE FOR PUBLIC PENSION RECIPIENTS

Rep. Chellie Pingree, D-Maine, is a lead cosponsor of the bill and said the Social Security Fairness Act "was truly transformative" for hundreds of thousands of Americans, but "it was never intended to saddle widows, low-income seniors, and dedicated public servants with an unexpected tax bill."

"The Not Tax on Restored Benefits Act addresses this problem in a fair, commonsense way – by protecting people who were previously below the taxation threshold from being unfairly punished because of a one-time, retroactive increase in their earned benefits," Pingree said.

The bill has received support from the National Association of Police Organizations, as Executive Director Bill Johnson noted that "retirees are facing a large tax bill on those same benefits Congress worked to restore" and the new legislation "will ensure no public servant will continue to be penalized simply because they chose public service."

MILLIONS TO GET HIGHER SOCIAL SECURITY PAYMENTS UNDER NEW LAW

The introduction of the No Tax on Restored Benefits Act follows the enactment of the Social Security Fairness Act last year, which made certain public sector retirees eligible for the retroactive payments and was signed into law in January 2025 by then-President Joe Biden.

It eliminated policies known as the Windfall Elimination Provision (WEP) and Government Pension (GPO) which reduced or eliminated Social Security benefits for workers who received a public pension and weren't covered by Social Security taxes. 

Those policies reduced or eliminated Social Security benefits for over 3.2 million people who receive a pension for work that wasn't covered by Social Security because they didn't pay Social Security taxes.

SOME SOCIAL SECURITY BENEFICIARIES TO RECEIVE PAYMENTS EARLY FOR FEBRUARY AND MARCH

Among the groups of people who were affected include certain teachers, firefighters and police officers in many states; federal employees covered by the Civil Service Retirement System; and people whose work was covered by a foreign social security system.

The WEP and GPO policies didn't apply to all people within those groups because about 72% of state and local public employees work in roles covered by Social Security and pay into the system – so those retirees won't see a benefit increase under the Social Security Fairness Act.

The elimination of WEP and GPO policies was retroactive to January 2024, and the Social Security Administration indicated the one-time payment would be deposited into the account on file by the end of March 2025.

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The nonpartisan Committee for a Responsible Federal Budget estimated that the Social Security Fairness Act will add $196 billion to the federal budget deficit over the 10 years after its enactment, and projected it will hasten the insolvency of Social Security's main trust fund by six months.