Most taxpayers are thrilled to receive unexpected income—until they calculate the impact it will have on their tax bill. Over 3 million Americans will be receiving additional Social Security income in 2025 thanks to the Social Security Fairness Act (SSFA). You can help. Make sure your donors who are affected by this change understand how it will impact their taxes, then show them how charitable giving can help mitigate that higher tax bill.
Why are some people receiving additional income?
The SSFA, signed into law on January 5, repealed two long-standing Social Security provisions that reduced or eliminated Social Security benefits for many people.
• The Windfall Elimination Provision (WEP) reduced benefits for those who received a pension from a job not covered by Social Security.
• The Government Pension Offset (GPO) reduced spousal or survivor benefits for those whose spouse received a government pension.
Affected individuals included teachers, police officers, firefighters, federal employees covered by the Civil Service Retirement System, and people whose work was covered by a foreign social security system.
Starting this month, these individuals will begin receiving their full benefits. Even better, the change is retroactive to January 2024, so increased payment amounts for months prior to April will be paid out in a lump sum. Most of these retroactive benefits have already been deposited into accounts.
What is the impact of the extra income?
Depending on a person’s total income and filing status, the higher benefit payment amount and/or the lump-sum retroactive payment might increase taxable income. Retirees might experience:
• A new or increased tax on benefits. Up to 50% of Social Security benefits can be taxable if combined income exceeds certain thresholds ($25,000 for single filers and $32,000 for joint filers in 2025)—and that increases to 85% if combined income exceeds $34,000 for single filers or $44,000 for joint filers.
• A higher income tax bracket. The income boost could push some people into a higher tax bracket.
• Medicare surcharges. Additional income this year could affect future Medicare premiums.
Why is this relevant to nonprofits?
If the increased benefit amount or the one-time retroactive payment will cause an issue for some of your donors, you have the opportunity to encourage them to mitigate a higher tax bill through charitable giving. Talk to these supporters about meeting their charitable goals with gifts that provide important tax advantages, including:
•A gift of an appreciated asset. By making a gift of an appreciated asset like stock or real estate, donors can qualify for a helpful tax deduction and bypass capital gains tax on the appreciation. This might be ideal for offsetting the one-time retroactive benefit payment.
•A gift from an IRA. Instead of taking a taxable required minimum distribution (RMD), IRA owners age 70½ and older can make a tax-free distribution directly to your organization (up to $108,000 in 2025) that counts toward their RMD if one is due. This can even benefit donors who don’t itemize.
•A gift that provides tax advantages and an income stream. Because a charitable gift annuity is part gift and part annuity, donors can qualify for an income tax deduction now for the gift portion to help offset their extra income. The annuity portion secures tax-advantaged income payments for the donor and/or a loved one for life.
•A gift to a donor-advised fund (DAF). The very popular DAF might be an ideal way for donors to compensate for the increased recurring benefits. Donors can contribute a larger amount now to offset higher taxes, qualify for an immediate income tax deduction for the full amount, then recommend charitable grants at any time in the future.
Keep this unique situation in mind as you talk with your donors this year. Make sure they understand the tax impact of the increased income and help them explore tax-advantaged gift options that can help them meet multiple planning goals.
