We're only a couple of months into the year, but Social Security has already gotten a pretty significant shakeup with the passage of the Social Security Fairness Act. And it seems more changes could be on the way.
It's too early to say exactly what's going to happen. But if even one of these things affects you, you could wind up with more money to spend in 2026.
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1. Full implementation of the Social Security Fairness Act
The Social Security Fairness Act, passed in January, removed the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), two key provisions that restricted benefits for certain public employees who received pensions from employers not covered by Social Security.
The 3.2 million affected Americans are eligible for larger monthly benefits, with an average increase of about $360 per month. Many will also be eligible for a one-time retroactive payment, since the Social Security Fairness Act applies to all payments made after December 2023.
Initial announcements from the Social Security Administration made it seem as if it would take a year or more to make the necessary payment adjustments. But automation has considerably sped up the process. Most affected beneficiaries will receive their retroactive payments in March and their new, larger checks beginning with their April 2025 payment.
However, there are complex cases that will require the Social Security Administration to manually adjust payments. It could take up to a year for this to occur, so we likely won't see full implementation of the Social Security Fairness Act's changes until early 2026.
2. Social Security benefit tax elimination
President Trump has pledged to eliminate Social Security benefit taxes, and while he doesn't have the authority to do this himself, his supporters in Congress are attempting to make good on his promise. Representative Thomas Massie (R-KY) has introduced the Senior Citizens Tax Elimination Act to the House. If passed, it would end the Social Security benefit tax, which currently makes up to 85% of seniors' Social Security benefits taxable at ordinary income rates.
This move would have immediate benefits for many retirees, though the lowest-income Americans may not notice a change. That's because they already don't pay Social Security benefit taxes under current law. Middle- to upper-income Americans could see significant savings. The Senior Citizens League (TSCL), a nonprofit senior group, estimates it could save the average retiree household $3,082 per year.
The long-term implications are a bit murkier. Social Security benefit taxes are one of only three funding sources for the program. And with another key income source -- interest on Social Security's trust funds -- dwindling rapidly, cutting Social Security benefit taxes could leave Social Security without enough money to pay out scheduled benefits sooner than expected.
The government could fix this by amending Social Security, either by increasing funding from other sources or reducing benefits. It will likely enact some sort of reform before the program becomes insolvent, but we don't know what this could look like yet.
3. A larger cost-of-living adjustment (COLA) than initially expected
Early TSCL projections suggested the 2026 cost-of-living adjustment (COLA) would be the lowest we've seen since 2021 at just 2.1%. However, more recent estimates suggest the COLA could be higher than originally expected.
TSCL's most recent estimate puts the 2026 COLA around 2.3%, which is still lower than what we saw this year. But there's still time for this to change before the official 2026 COLA announcement in October.
Whether a larger COLA is worth celebrating is a matter of perspective. It means a bigger bump up to your benefit, but it also comes alongside higher inflation. COLAs don't usually lead to greater buying power because of increased living costs, and there's actually some evidence that Social Security's buying power is declining in spite of COLAs.
It's too soon to say where the COLA winds up, but once we do know, it'll be time to start planning your budget for next year. Hopefully by then, we'll also have a better idea of whether you could owe Social Security benefit taxes in 2026.
