Almost 3 million individuals are set to receive increased Social Security benefits due to new legislation signed by President Joe Biden. While the boost in benefits is welcome news, it may also come with additional tax responsibilities.

The Social Security Fairness Act, which recently passed with bipartisan support, eliminates benefit reductions for certain individuals who also receive pension income from public sector jobs like firefighting, policing, teaching, and government employment.

As a result of this legislation, affected beneficiaries will see a rise in their monthly benefit checks along with lump-sum payments to cover previous months. The details regarding the implementation of these increases are currently being worked out by the Social Security Administration.

These benefit hikes, estimated to cost $196 billion over the next decade, will bring the depletion of Social Security’s trust funds six months closer. While the combined trust funds are expected to pay full benefits until 2035, thereafter only 83% of scheduled benefits may be payable, according to projections from the program’s trustees.

Approximately 2.1 million beneficiaries affected by the Windfall Elimination Provision (WEP) could see an average increase of $360 in their monthly benefits. The WEP, which is now eliminated, previously reduced benefits for individuals who had pensions or disability income from jobs not subject to Social Security payroll taxes.

Additionally, around 380,000 spouses and 390,000 surviving spouses impacted by the Government Pension Offset (GPO) might receive average monthly benefit boosts of $700 and $1,190, respectively, as per estimates from the Congressional Budget Office.

The removal of these provisions simplifies retirement planning for affected beneficiaries, allowing for a significant increase in retirement income for many individuals.

Higher Social Security benefits could lead to increased taxes for beneficiaries, especially if their income surpasses certain thresholds. This extra income might also push some recipients into higher tax brackets, impacting their overall tax liabilities.

The current rules allow for up to 85% of Social Security benefit income to be taxed, and although President Donald Trump has expressed intentions to eliminate these taxes, the status of this change remains uncertain. Taxation of benefits is based on a formula known as combined income, which includes adjusted gross income, nontaxable interest, and half of Social Security benefits.

Increased benefit income from the Social Security Fairness Act could result in higher income-based surcharges for Medicare Parts B and D. Beneficiaries with higher incomes are required to pay income-related monthly adjustment amounts (IRMAAs) for these Medicare premiums.

It’s crucial for affected individuals to monitor their income levels to avoid inadvertently triggering higher Medicare premiums in the future. Those on the edge of income thresholds need to pay extra attention to prevent unexpected increases in their healthcare costs.

Individuals impacted by the recent Social Security changes should seek advice from financial advisors and tax professionals to better understand the implications on their finances. Consulting with experts while filing taxes can help beneficiaries plan for potential tax consequences and Medicare surcharges.

The Social Security Administration will provide further guidance on the new legislation in the coming months. Beneficiaries are advised to ensure their direct deposit and contact information is up to date to avoid any delays in benefit payments.

Some individuals who were previously ineligible for Social Security benefits due to WEP and GPO provisions may now qualify. Those interested in applying for benefits can do so online or by scheduling an appointment with the Social Security Administration.