Income Tax Exclusion Proposed for Retroactive Payments Due to GPO/WEP Repeal

February 18, 2026

New legislation to create a special exclusion from gross income for certain retroactive Social Security (SS) payments that public‑sector retirees received after the repeal of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) under the Social Security Fairness Act (SSFA) has been introduced in the House of Representatives. The effect would be to exclude those retroactive SSFA‑related payments from federal income tax for the 2025 tax year. It is not yet clear how much support the legislation will receive in this Congress, and uncertain if there will be an opportunity for it to be included in any tax legislation that may pass before the current Congress completes its work at the end of 2026.

The elimination of WEP and GPO policies was made retroactive to January 2024 by the SSFA, and the Social Security Administration (SSA) has said that as of July of 2025, it had completed more than 3.1 million payments totaling $17 billion to eligible SSFA beneficiaries. [NB: Several U.S. Senators are currently pressuring the Social Security Administration (SSA) to resolve a “flaw” in how adjustments are being issued. While the law intends for payments to be retroactive to January 2024, some new applicants are reportedly only receiving six months of back pay rather than a full year.]

The adjustments made by repealing GPO and WEP included higher monthly benefit payments and one-time lump-sum payments, and 2026 will be the first tax-filing season that SSFA beneficiaries will see those payments in their SSA-1099s. This means a retiree who got a large catch-up payment in 2025 must include it as income on their 2025 federal tax return (filing now in tax season 2026), even though the money reflects benefits earned over a much longer period. As Kiplinger — an American publisher of business forecasts and personal finance advice – points out, for some retirees, this “one-time spike can push them into a higher federal income tax bracket, increase the share of Social Security subject to tax, or trigger higher Medicare premiums down the line — perhaps without any real change in their underlying financial situation.”

In response to this, on February 4th Congressman Lance Gooden (R-TX) introduced the “No Tax on Restored Benefits Act” (no bill number has been assigned as of this writing) to ensure public-sector retirees are not subject to an unexpected tax burden on benefits restored by the SSFA, “creating an unexpected, steep tax burden for these retirees,” he explained. “Our public-sector retirees worked their whole lives to serve and improve our communities. The No Tax on Restored Benefits Act guarantees that they keep every dollar of the benefits they have rightfully earned,” Gooden explained in a press release accompanying the introduction of his legislation.

His bill is cosponsored by Congresswoman Chellie Pingree (D-ME), who said that the SSFA “was never intended to saddle widows, low-income seniors, and dedicated public servants with an unexpected tax bill.” She said the new legislation “addresses this problem in a fair, commonsense way — by protecting people who were previously below the taxation threshold from being unfairly punished because of a one-time, retroactive increase in their earned benefits.”

To date, the bill has received support from the Texas Retired Teachers Association — a valued NCTR member – as well as the International Association of Chiefs of Police, the National Association of Police Organizations, and the National Fraternal Order of Police.

However, others have raised concerns. For example, Kevin Thompson, the CEO of 9i Capital Group – a registered investment adviser located in Fort Worth, Texas — and the host of the 9innings podcast, told Newsweek he thought beneficiaries of the SSFA “should be taxed like everyone else who has received those very benefits.” He asked, “where is this money coming from and who is going to pay for it?”

Costs were also an issue for Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, who told Newsweek that while the proposal to exempt restored Social Security benefits from federal income tax may feel like attempting to level the playing field for some retirees, “it also carries broader fiscal implications.” He said, “Social Security is already facing solvency challenges in the coming years, and any reduction in tax revenue tied to benefit payments adds pressure to the system and to the federal budget.”

Many of these same concerns were raised in opposition to the SSFA itself during Congressional debate in December of 2024. As was noted then, the SS benefits of approximately just four percent of all SS beneficiaries would be expanded by repeal of GPO and WEP, with a cost of almost $200 billion; the insolvency of the combined trusts funds will be advanced by half a year as a consequence; and any automatic benefit cuts that could occur as a result of insolvency would be larger than they would have been without the repeal.

For example, during Senate consideration of the SSFA, Senator Grassley (R-IA), a senior member of the Senate Finance Committee, explained that the effects of the SSFA on SS solvency would mean “a typical senior would see their benefits cut by an additional $4,000 – and six months earlier than that date that’s predicted now to be the year 2033.” Complaining that only “a select few state and local government employees will be gifted a boost in their benefits” in Iowa — where only eight percent of government workers are not covered by Social Security – he pointed out that just one percent of all retirees, public and private, in Iowa would benefit, while everyone else would get less. “That doesn’t sound fair to me,” he said.

Grassley also next noted that most states “have opted into Social Security for the vast majority of their workers” and in these states, he stressed that government employees and retirees covered by Social Security would “see no benefit under this bill.”

However, no serious criticism or concern has been raised with the new Gooden legislation — so far. Virtually all coverage to date describes the bill neutrally or favorably, and no expert, organization, or policymaker has publicly objected to it. At least for now. Also, the bill is narrowly drawn, does not change how SS benefits are taxed overall, does not modify benefit formulas, and does not affect current SS tax rules for ongoing monthly benefits.

Nevertheless, it should be remembered that eight of the fourteen members of the GOP majority on the Senate Finance Committee voted against the SSFA, including Senator Crapo, its Chair, as well as Senator John Thune (R-SD), the Senate Majority Leader. On the House side, the GOP Freedom Caucus — generally considered to be the most conservative and furthest right bloc within that chamber — initially succeeded in derailing the SSFA’s discharge petition before this was quickly undone. And House Leadership is still said to be smarting over the way the bill was advanced procedurally in that body.

The point being that important Congressional leaders – particularly tax- writing committee members — may not be all that anxious to advance new legislation to “fix” a problem with legislation that they opposed in the first place. And neither Gooden nor Pingree is on the House Ways and Means Committee.

Finally, there is the question of a legislative vehicle for the new proposal, and tax‑policy analysts, law firms, and D.C. policy shops are saying that the chances of any tax legislation clearing Congress in 2026 is viewed as unlikely. As the law firm of Sullivan & Cromwell notes, “ongoing partisan disagreements” and unresolved funding issues — not to mention the mid-term elections in November — will dominate, constraining tax activity.

Perhaps more importantly, any Budget Reconciliation bill is unlikely this year, as President Trump — according to a February 10 Politico report – has explicitly ruled out pursuing another reconciliation bill in 2026. This is significant because Budget Reconciliation’s ability to pass by a simple majority vote in the Senate makes it, realistically, the only viable vehicle for large tax bills in a divided Congress. (Note, when reviewing their analysis, that Sullivan & Cromwell wrote this before President Trump’s comments on budget reconciliation.)

Nevertheless, a small, bipartisan tax package could be possible — but only on discrete issues, with Sullivan & Cromwell suggesting taxation of digital assets, gambling losses, and small, targeted individual tax relief as possibilities.

And the “No Tax on Restored Benefits Act?” Stay tuned!