Nearly 3 million Americans to receive higher Social Security benefits, potentially leading to increased tax bills and Medicare premium costs.

• Nearly 3 million Americans are poised to see bigger Social Security benefit checks.
• Experts predict that some individuals may face larger tax bills and higher Medicare premiums.

Thanks to new legislation signed by President Joe Biden, nearly 3 million individuals are set to receive an increase in their Social Security benefits. However, this may result in additional tax burdens.

The Social Security Fairness Act, which was passed by a bipartisan majority in both the House and Senate, ends reductions of Social Security benefits for individuals who also receive pension income from work in the public sector as firefighters, police officers, teachers, and local, state, and federal employees.

The beneficiaries will receive an increase in their monthly benefit checks due to legislation that applies to benefits paid throughout 2024, and they will also receive lump-sum payments to compensate for the time period.

The Social Security Administration is currently deciding on the specifics of how those increases will be implemented.

Over the next ten years, the Congressional Budget Office estimates that the additional outlay will delay the depletion of Social Security's trust fund by six months. As a result, the program's combined trust funds may be able to pay full benefits until 2035, with only 83% of scheduled benefits payable after that date, according to the program's trustees.

How Social Security benefits may change

According to CBO estimates from December 2025, approximately 2.1 million beneficiaries who were impacted by the Windfall Elimination Provision (WEP) may receive an average of $360 more in monthly benefits. The WEP, which has since been abolished, reduced Social Security benefits for workers who also received pension or disability benefits from jobs where they did not contribute to Social Security payroll taxes.

The Social Security Fairness Act has been signed by Biden, bringing significant changes to both Social Security and Medicare in 2025. Despite this, 73% of workers express concern that Social Security may not be able to cover its benefits.

According to CBO's estimates for December 2025, 380,000 spouses would see an average benefit increase of $700, while 390,000 surviving spouses would see an average increase of $1,190.

The GPO, a now-defunct government program, reduced Social Security benefits for spouses, widows, and widowers who also received pensions from public sector work.

Simplifying retirement income planning for affected beneficiaries is a result of eliminating provisions, financial advisors say.

"Michael Daley, director of marketing at HealthView Services, stated that for those impacted, there will be a substantial increase in their retirement income, which is positive news."

Financial planners and their clients face the challenge of estimating the amount and timing of benefit increases, according to Joe Elsasser, founder and president of Covisum, a Social Security claiming software company.

Experts warn that the extra income may cause issues with taxes and Medicare premiums for the affected beneficiaries.

Beneficiaries could see higher taxes on benefits

Experts say that if Social Security beneficiaries' income exceeds certain thresholds, their benefits may be subject to taxation.

According to HealthView Services, the additional money may cause some beneficiaries to move into higher tax brackets.

Up to 85% of Social Security benefit income is currently taxed according to current rules, though it is uncertain whether President-elect Donald Trump will implement a change to eliminate taxes on this income.

Daley stated that the income thresholds for those taxes on benefits are not adjusted annually for inflation, resulting in more beneficiaries being subject to those taxes over time, including middle class households.

The combined income formula is used to determine those levies, which include adjusted gross income, nontaxable interest, and half of Social Security benefits.

If an individual's combined income is between $25,000 and $34,000, or for married couples with between $32,000 and $44,000, they pay taxes on up to 50% of their benefits.

If an individual's combined income is more than $34,000, they may pay taxes on up to 85% of their benefits. Similarly, for married couples, if their combined income is more than $44,000, they may also pay taxes on up to 85% of their benefits.

"Since Social Security benefits are taxed differently than everything else, people will be particularly attentive to their other sources of income with the anticipated benefit increases and lump sum payments," Elsasser stated.

If a retiree has both a taxable account and traditional individual retirement account, they may want to prioritize withdrawals from the taxable account because only the gains would be taxed rather than the entire withdrawal, as explained by Elsasser. In the event the lump-sum payment of retroactive Social Security benefits is not distributed, they may take an IRA withdrawal later in the year.

Beneficiaries may see higher Medicare costs

The Social Security Fairness Act may lead to additional benefit income for some individuals, but it could also result in higher income-based surcharges for Medicare Parts B and D.

Beneficiaries of Medicare with higher incomes are required to pay IRMAAs for their Part B and D premiums.

Failing to consider other sources of income could result in higher Medicare premiums two years from now, even if you receive a lump sum, according to Elsasser.

He stated that people who are close to the income thresholds will be most concerned about the rewritten sentence.

In 2025, Medicare Part B beneficiaries with a modified adjusted gross income of $106,000 or less, or married couples with a combined modified adjusted gross income of $212,000 or less, will pay a standard monthly premium of $185.

This year's Part B premium payments for beneficiaries above income thresholds are determined based on an IRMAA, which is based on income reported on tax returns filed in 2023.

In 2025, individuals and married couples with an annual income over $106,000 and $212,000, respectively, will have to pay additional income-related monthly adjustment amounts on top of their Part D plan premiums. These premiums will be determined based on the yearly income reported on tax filings for 2023. The national base Part D premium in 2025 is $36.78.

Steps to take now

It is recommended that individuals impacted by the Social Security Fairness Act seek advice from a financial advisor to evaluate the impact of the change on their financial situation, according to Ron Mastrogiovanni, CEO of HealthView Services.

It would be beneficial to consult with a certified public accountant when filing taxes for 2025, he advised.

The Social Security Administration will offer additional guidance on the new law as more information becomes available.

The Social Security recommends updating direct deposit and mailing address information online or by visiting a Social Security office in person.

Individuals who were previously ineligible for Social Security benefits may now become eligible due to the elimination of the WEP and GPO provisions.

The Social Security Administration suggests filing for benefits either online or by scheduling an appointment with the agency.