Quick Read
The SSA is distributing lump-sum back payments averaging $30,000 to $50,000+ to retirees whose benefits were reduced by the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO), which Congress repealed retroactive to January 2024.
The average household is receiving $1,500-$2,000 per month in restored ongoing benefits.
Retirees can use Internal Revenue Code Section 86(e) to attribute lump-sum payments to prior years and pay tax at those lower historical rates instead of being pushed into a higher bracket in the year of receipt, potentially saving thousands in federal taxes.
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For the first time in years, a retired teacher in Ohio, a former police sergeant in Massachusetts, or the widow of a federal civil servant might log into their Social Security account and find a deposit they never expected. For some, it runs $30,000. For others, north of $50,000. These are pre-2024 retirees who spent years watching the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) shrink or zero out their checks.
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A recent post in a public-employee retirement forum captured the mood: a retired firefighter wrote that he had been resigned to a $280 monthly benefit for a decade, then woke up to a $41,000 deposit and a revised statement showing $1,750 going forward.
What gives? Congress repealed WEP and GPO retroactive to January 2024, and the Social Security Administration (SSA) is now paying out the difference between what these retirees received and what they should have collected under the new rules. For a household where WEP shaved off roughly $500 a month and GPO wiped out a $1,500 survivor benefit, the gap runs around $1,500 to $2,000 per month. Multiply that across 28 months from January 2024 through April 2026, and the lump sum quickly clears $40,000.
The tax trap inside a five-figure deposit
The lump sum is treated as Social Security income in the year it’s received, which means a household that normally sits in the 12% federal bracket can land in 22% or higher for 2025 or 2026 only. It can also flip the share of benefits subject to tax from zero to 85%, raise Medicare Part B and Part D premiums two years later through Income-Related Monthly Adjustment Amounts (IRMAA), and knock out some Affordable Care Act subsidies for a spouse still under 65.
The fix is buried in Internal Revenue Code Section 86(e), often called the lump-sum election. Instead of taxing the entire back payment in the year of receipt, a retiree can attribute portions of it to the years the payments were owed, recompute the taxable share of benefits using each prior year’s income, and pay tax at those older, usually lower, rates. No amended returns are required. The calculation lives on the current year’s return, with the worksheet found in IRS Publication 915.
