--- title: Millions Face a Tax Shock on Social Security Back Pay. Congress Is Racing to Fix It description: Some retirees face surprise tax bills after Social Security back payments. Lawmakers are pushing a fix before April 15. authors: - name: Martha C. White role: Writer url: https://money.com/author/martha-c-white/ education: BA, English, Princeton University at_money_since: 2015 articles: 349 covers: - Retirement - Banking - Business - Career Advice - Credit - Credit Cards - Debt - Economy and Politics - Education - Federal Reserve Rate Cuts - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Professional Services - Shopping - Taxes - Technology editors: - name: Katherine Peach role: Associate Editor url: https://money.com/author/katherine-peach/ bio: Katherine Peach is an associate editor with a focus on news and email at Money. She didn’t always intend to write about money. She’s a classically trained pianist who dreamed of becoming an archaeologist. However, in 2007 Katherine began working in financial publishing as an editor for Agora Inc. (Apparently, unearthing ideas about improving your personal finances isn’t such a bad career alternative!) Katherine’s writing and editing work has been featured in Investing Daily, Clever, Investor Junkie, The Palm Beach Letter, Truth & Plenty, Independence Monthly, NICHE, AmericanStyle, AntiqueWeek, Millennial Money, Money Done Right, TheStreet, Sure Dividend and many others. Katherine holds a Bachelor of Arts in Ancient Studies with concentrations in Archaeology and Ancient Languages and a minor in Literature from the University of Maryland, Baltimore County. She is a member of Phi Beta Kappa. education: University of Maryland, Baltimore County at_money_since: 2025 articles: 14 covers: - Retirement - Banking - Career Advice - Credit - Credit Cards - Debt - Economy and Politics - Education - Federal Reserve Rate Cuts - Health and Wellness - Housing - Identity Theft - Insurance - Investing - Lifestyle - Loans - Mortgages - Personal Finance - Professional Services - Shopping - Taxes published: '2026-02-13T13:30:50.000Z' section: Retirement tags: - News word_count: 875 canonical: https://money.com/social-security-tax-hit/ type: NewsArticle source: structured-blocks --- > **Disclosure:** We research all brands listed and may earn a fee from our partners. Research and financial considerations may influence how brands are displayed. Not all brands are included. [Learn more](https://money.com/page/disclaimer/). ![Photo collage of a hand holding a ripped dollar bill, and another holding a ripped social security card](https://img.money.com/2026/02/News-Bill-Taxes-Social-Security1.jpg) A bipartisan "fix" to Social Security benefits for public-sector retirees could lead to a big tax hit for those Americans. Lawmakers are racing the clock before taxes come due on April 15. The Social Security Fairness Act (SSFA), [passed](https://money.com/social-security-fairness-act-status/) by Congress in late 2024, provided big lump-sum back payments and higher monthly benefits for millions of public-sector retirees covered by certain pensions who received lower or no Social Security benefits. Those back payments [started](https://money.com/social-security-fairness-act-payments/) going out in February of last year, and recipients started receiving higher monthly checks starting with their March benefits. While this was welcome news for recipients, here’s the rub: The lump sums were based on payments that should have been made over the course of many years, averaging $6,710, [according](https://www.ssa.gov/blog/en/posts/2025-03-05-a.html) to the Social Security Administration. The IRS requires that taxes on those payments be paid in the year they were received, which means some retirees could face an unpleasant surprise when they fill out their tax returns this year. ## Protect your retirement with a Reverse Mortgage ### If you are over 62, a Reverse Mortgage from Longbridge Financial (NMLS# 957935) can help you take care of expenses or even invest in things that will improve your quality of life. Click on your state to learn more. [Learn More](https://money.com/pr/s978d3010185?ap_referrer=%2Fsocial-security-tax-hit%2F) A new proposal wants to shield beneficiaries from big tax bills triggered by those payments. The No Tax on Restored Benefits Act, introduced in February, would [create](https://gooden.house.gov/_cache/files/5/9/59c4f52a-0085-4593-b913-a50b35044d0e/F18E8B8C88FFDDBDE1DFE85BEA5638E8A642AA5ED9FC237FE6C43F3B574454BC.bill-text---no-tax-on-restored-benefits-act.pdf) a one-time carve-out to exclude the lump-sum payments from income tax. Rep. Lance Gooden (D-TX), who introduced the bill, said it would protect these retirees from what he characterized as “an unexpected, steep tax burden” brought about by the SSFA. The bill “guarantees that they keep every dollar of the benefits they have rightfully earned,” Gooden [said](https://gooden.house.gov/press-releases?ID=F983A1CD-519E-48EE-825D-953962A427BA) in a statement. The legislation has been taken up by the House Ways and Means Committee; its future and potential timeline of passage is uncertain, but it’s worth noting that the Social Security Fairness Act passed by broad bipartisan margins. ## Latest plot twist in Social Security drama Taxes on Social Security have long been a hot-button issue, but the topic has gotten more visibility lately for a number of reasons. On the 2024 campaign trail, President Donald Trump promised to eliminate taxes on retirees’ Social Security benefits. He was [unable](https://money.com/no-tax-on-social-security-gop-tax-bill/) to deliver that, but his pledge morphed into the “senior bonus" [included](https://money.com/tax-changes-new-law-2025-and-2026/) in the One Big Beautiful Bill, or OBBB, passed by Congress last year. This temporary provision lets people 65 and up who earn less than $75,000 ($150,000 for couples) [claim](https://money.com/social-security-changes/) an additional $6,000 tax deduction between now and 2028. The framework for taxing Social Security benefits was far from straightforward even before the OBBB and the Social Security Fairness Act. While retirees have to pay taxes on earnings from sources including part-time jobs, interest and 401(k) withdrawals, Social Security has historically been taxed differently, with retirees who earn less than $25,000 ($32,000 for couples) paying no tax on their benefits at all. (In addition, only nine [states](https://money.com/social-security-state-taxes-2025/) still tax Social Security benefits.) For higher-income beneficiaries, both the percentage of benefits that are federally taxed as well as the tax rate adjust based on income. Legislation [introduced](https://money.com/no-tax-on-social-security-bill/) earlier this year by Sen. Ruben Gallego (D-AZ) would have simplified retirees' tax preparation by eliminating federal taxes on Social Security benefits entirely. Currently, about 40% of Social Security recipients pay at least some tax on those benefits, [according](https://www.ssa.gov/pubs/EN-05-10077.pdf) to the agency. “Trump claimed he ended taxes on Social Security. My bill actually does it," Gallego said in a [statement](https://www.gallego.senate.gov/news/press-releases/gallego-introduces-legislation-to-actually-eliminate-taxes-on-social-security/) announcing the You Earned It, You Keep It Act. Gallego proposed making up for the loss of tax revenue by increasing the cap on Social Security payroll contributions, which some say unfairly benefits high-income earners. "The ultra-wealthy barely pay into the system at all,” he said. ## Lawmakers face a looming funding crisis The idea of increasing or even eliminating the payroll tax cap has been floated over the years as a way to help stabilize the long-term solvency of the nation’s benchmark retirement program. Two trust funds currently supplement the money the government takes in to pay out Social Security benefits**.** If lawmakers don't intervene, that money will be depleted by 2032, a new Congressional Budget Office report [warns](https://www.investmentnews.com/retirement-planning/social-security-trust-fund-to-run-dry-by-2032-cbo-says-in-new-projections/265241). That's earlier than previous calculations have projected. Once the trust funds are drawn down, this would [trigger](https://money.com/social-security-funds-run-out-2034/) an automatic cut of roughly 20% in benefits under current law. Some express concern that eliminating taxes on SSFA lump-sum payments will contribute to this erosion. "This legislation worsens Social Security finances and will increase the size of any benefit cut or tax increase needed to achieve solvency," Karen Smith, a senior fellow at the Urban Institute, says via email. One analysis [estimated](https://www.pgpf.org/article/should-we-eliminate-the-social-security-tax-cap-here-are-the-pros-and-cons/) that eliminating the cap entirely could make up for as much as 73% of Social Security’s projected shortfall — without any other adjustments or reductions in benefits. Gallego's bill would have raised the cap from its then-current level of $176,100 to $250,000. (The cap, which is adjusted for inflation, rose to $184,500 for 2026.) At that higher level, the revenue collected would be enough to keep Social Security fully funded through 2058, Gallego said. Although far less drastic than repealing the cap entirely, the legislation so far has not advanced out of committee. ## With a Reverse Mortgage, you can invest in your future starting today ### Work with a licensed Finance of America (NMLS# 2285) representative today. [Learn More](https://money.com/pr/t879fd448b2c?ap_referrer=%2Fsocial-security-tax-hit%2F) ![](https://s3.consumersadvocate.org/prd/image/image/39553/medium_d01d803f-1110-4310-8997-bada342c27e4.webp) Get the most out of your Reverse Mortgage with Finance of America (NMLS# 2285) [Learn More](https://money.com/pr/ed1a928f8683?ap_referrer=%2Fsocial-security-tax-hit%2F) ```json { "@context": "https://schema.org", "@graph": [ { "@type": "BreadcrumbList", "@id": "https://money.com/social-security-tax-hit/#breadcrumb", "itemListElement": [ { "@type": "ListItem", "position": 1, "name": "Home", "item": "https://money.com" }, { "@type": "ListItem", "position": 2, "name": "Retirement", "item": "https://money.com/retirement/" }, { "@type": "ListItem", "position": 3, "name": "Social Security", "item": "https://money.com/social-security/" }, { "@type": "ListItem", "position": 4, "name": "Millions Face a Tax Shock on Social Security Back Pay. Congress Is Racing to Fix It" } ] }, { "@type": "WebSite", "@id": "https://money.com/#website", "url": "https://money.com", "name": "Money", "publisher": { "@id": "https://money.com/#organization" } }, { "@type": "WebPage", "@id": "https://money.com/social-security-tax-hit/#webpage", "url": "https://money.com/social-security-tax-hit/", "name": "Millions Face a Tax Shock on Social Security Back Pay. Congress Is Racing to Fix It", "isPartOf": { "@id": "https://money.com/#website" }, "datePublished": "2026-02-13T13:30:50.000Z", "mainEntity": { "@id": "https://money.com/social-security-tax-hit/" }, "inLanguage": "en-US", "breadcrumb": { "@id": "https://money.com/social-security-tax-hit/#breadcrumb" } }, { "@type": "NewsArticle", "headline": "Millions Face a Tax Shock on Social Security Back Pay. Congress Is Racing to Fix It", "articleSection": "Retirement", "image": [ { "@type": "ImageObject", "url": "https://img.money.com/2026/02/News-Bill-Taxes-Social-Security1.jpg", "width": 1376, "height": 918, "caption": "News-Bill-Taxes-Social-Security" } ], "author": [ { "@type": "Person", "name": "Martha C. White", "url": "https://money.com/author/martha-c-white/", "@id": "https://money.com/author/martha-c-white/#author", "image": "https://img.money.com/2014/01/martha.png?w=350&h=430&crop=1", "jobTitle": "Writer", "alumniOf": "BA, English, Princeton University", "worksFor": { "@id": "https://money.com/#organization" } } ], "publisher": "https://money.com/#organization", "datePublished": "2026-02-13T13:30:50.000Z", "description": "Some retirees face surprise tax bills after Social Security back payments. Lawmakers are pushing a fix before April 15.", "abstract": "Some retirees face surprise tax bills after Social Security back payments. Lawmakers are pushing a fix before April 15.", "@id": "https://money.com/social-security-tax-hit/", "inLanguage": "en-US", "editor": [ { "@type": "Person", "name": "Katherine Peach", "url": "https://money.com/author/katherine-peach/", "@id": "https://money.com/author/katherine-peach/#author", "description": "Katherine Peach is an associate editor with a focus on news and email at Money. She didn’t always intend to write about money. She’s a classically trained pianist who dreamed of becoming an archaeologist. However, in 2007 Katherine began working in financial publishing as an editor for Agora Inc. (Apparently, unearthing ideas about improving your personal finances isn’t such a bad career alternative!)\r\n\r\nKatherine’s writing and editing work has been featured in Investing Daily, Clever, Investor Junkie, The Palm Beach Letter, Truth & Plenty, Independence Monthly, NICHE, AmericanStyle, AntiqueWeek, Millennial Money, Money Done Right, TheStreet, Sure Dividend and many others.\r\n\r\nKatherine holds a Bachelor of Arts in Ancient Studies with concentrations in Archaeology and Ancient Languages and a minor in Literature from the University of Maryland, Baltimore County. She is a member of Phi Beta Kappa.", "jobTitle": "Associate Editor", "alumniOf": "University of Maryland, Baltimore County", "worksFor": { "@id": "https://money.com/#organization" } } ], "wordCount": 875, "keywords": [ "News" ], "about": [ { "@type": "Thing", "name": "Retirement", "sameAs": [ "https://en.wikipedia.org/wiki/Retirement" ] }, { "@type": "Thing", "name": "Social Security (United States)", "sameAs": [ "https://en.wikipedia.org/wiki/Social_Security_(United_States)" ] } ] } ] } ```