Biden Signs Social Security Fairness Act (SSFA) into Law

With the United States Presidential Inauguration just around the corner on January 20th, President Biden is not done yet. On January 5th, President Biden signed the Social Security Fairness Act (SSFA) into law. This act repealed the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO)—two provisions added to the Social Security Act in 1983. According to the White House, this repeal will provide an average monthly increase of $360 to more than 2.5 million Social Security recipients.

Notably, the law will retroactively compensate recipients for the amounts they should have received throughout 2024, under this change.

The two repealed provisions, WEP and GPO, had historically limited Social Security income in different ways:

1. Windfall Elimination Provision (WEP):
   The WEP reduced Social Security benefits for individuals who worked in jobs where they did not pay into the Social Security system but later worked in jobs where they did. For example, many public sector jobs, such as firefighters, police officers, and teachers, do not withhold Social Security taxes from employees. If an individual worked in one of these roles for part of their career and later transitioned to the private sector—or vice versa—they would have been subject to this reduction if certain criteria were met.
2. Government Pension Offset (GPO):
   The GPO targeted spousal or survivor benefits for individuals who received a government pension from work not covered by Social Security. It reduced Social Security spousal or survivor benefits by two-thirds of the individual’s government pension.
   • For example, if an individual received a monthly government pension of $2,250, the GPO would reduce their Social Security spousal or survivor benefits by $1,500.

Impact on Americans Living Abroad

The repeal of WEP and GPO will also impact Americans receiving US Social Security income while living abroad in various ways:

• Higher Social Security Income: Individuals who previously worked in the public sector in the US can now expect to receive more Social Security income.
• WEP’s International Impact: Previously, WEP reduced benefits for individuals with “dual” pensions, even at an international level. For example, an American working in Switzerland under the AHV/AVS system or in the UK contributing to the State Pension, and later earning US Social Security credits, would have had their US Social Security benefits reduced. This change is particularly significant for retirees who split their careers between the US and countries with Totalization Agreements, which coordinate Social Security benefits between nations. There are 29 countries with Social Security agreements with the US, whose workers will potentially benefit from this change.
• GPO’s Impact on Spousal or Survivor Benefits: Under the GPO, spousal or survivor benefits were reduced for those receiving a foreign government pension. With the repeal, individuals can now receive their full Social Security spousal or survivor benefits alongside their foreign pension.

Tax Planning Considerations

From a tax planning perspective, this change is advantageous as it simplifies the calculation of retirement income from both US Social Security and foreign pensions. However, there are potential tax implications:

• Higher Taxable Income: As Social Security income increases, recipients may face a higher tax liability on their US tax returns.
• Tax Treaties and Foreign Taxes: Depending on the tax treaty between the US and the foreign country, the additional income could also be taxable in the foreign country where the individual resides.

The repeal of WEP and GPO under the SSFA means increased Social Security income and a simplification of income calculations for retirees. However, individuals receiving US Social Security benefits should carefully consider the potential tax implications on their US and foreign tax returns. Proper financial and tax planning will be essential to maximize the benefits of this significant change.

If you have any queries about your US or US & UK tax returns, feel free to contact us.

Article written by Hannah Nelson