2025 Social Security Fairness Act

[2025SSFAct]

My federal government retired parent received a lump sum as a result of the Social Security Fairness Act (which was signed into law in January 2025).  What are some of the 2025 tax implications that my parent should be aware of for the 2025 tax reporting?

[xmasbaby0]

No "special"  tax implications....Social Security is taxable for federal tax returns if you are receiving other kinds of income, so the SSA1099 must be entered on their 2025 tax return.   And there are nine states that tax SS.

If they are 65 or older, they will be getting the extra $6000 deduction for each spouse 65 or older, which will help with the tax owed.

[Bsch4477]

The social security payment will be added to your parent’s usual social security income and taxed accordingly. 

[Opus 17]

Without more information, there's not much we can tell you.  Can the income be stretched over several years?  No, not any longer.   Could it put them in a higher tax bracket?  Maybe, depending on their other income, like pensions and IRA withdrawals.  Can the taxes be estimated?  Yes, using one of these tools.

https://www.irs.gov/individuals/tax-withholding-estimator

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

If they owe a high tax bill, will they owe a penalty as well?  Possibly.  They might want to make estimated payments now, or if they are assessed a penalty later, they can ask for forgiveness (abatement) for cause.

If their SS benefit is their only income it is not taxable.  If they have other income, the other income is taxable plus the SS benefit may be partly taxable as well.  But it depends on their unique facts and circumstances.  If they are concerned, it would be best to talk to a tax pro who can ask all the right questions and get the personal details that matter to their situation. 

[rjs]

If the Form SSA-1099 designates part of the payment as being for prior years, your parent might be able to reduce the tax by using the lump-sum election. TurboTax will ask whether they received a lump-sum payment. If you answer Yes it will walk you through trying out the lump-sum election to see if it saves any money. You would need copies of the parent's tax returns for the prior years.

[2025SSFAct]

Curious as to what other information you would need.  My parent is an 81 yr old widow, retired from the VA.  No other income is received. While the lump sum was appreciated when received, she's afraid of what she may end out owing tax wise.

[xmasbaby0]

@2025SSFAct She will need her SSA1099.    If her only other income is from the VA, she might have a 1099R to enter.  

https://www.irs.gov/help/ita/are-my-social-security-or-railroad-retirement-tier-i-benefits-taxable

You need to file a federal return if half your Social Security plus your other income is

Single or Head of Household      $25,000

Married Filing Jointly                  $32,000

Married Filing Separately            $0

Some additional information:  There are 9 states that tax Social Security—Colorado, Connecticut,, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont  and West Virginia These states offer varying degrees of income exemptions, but two mirror the federal tax schedule: MN and VT.

[2025SSFAct]

Yes, a SSA1099 and 1099R are the only income reporting forms she receives.  She's a widow and lives in Texas.