The Windfall Elimination Provision for Social Security Benefits (SSA)

Windfall Elimination Provision for Social Security Benefits

Windfall Elimination Provision for Social Security Benefits

Sometimes, when a US person is entitled to social security benefits, the amount of social security they receive can be limited by other retirement benefits they receive from employers who did not withhold social security — such as foreign pension plans. This is referred to as the Windfall Elimination Provision — and it is designed to ensure that US Taxpayers do not benefit from the fact that they receive both Social Security and foreign or other retirement pension stemming from employment that would have otherwise been paid into the US Social Security System. Let’s take a walk through the Windfall Elimination Provision:

As provided by the SSA below :

When Your benefits can be affected

This provision can affect you if both the following are true:

• • • You earn a retirement or disability pension from an employer who didn’t withhold Social Security taxes.

    • You qualify for Social Security retirement or disability benefits from work in other jobs for which you did pay taxes.

The Windfall Elimination Provision can apply if one of the following is true:

• • • You reached age 62 after 1985.

    • You developed a qualifying disability after 1985.

  • If the latter applies, you must first have become eligible for a monthly pension based on work where you didn’t pay Social Security taxes after 1985.

  • This rule applies even if you’re still working. This provision also affects Social Security benefits for people who performed federal service under the Civil Service Retirement System (CSRS) after 1956.

  • We won’t reduce your Social Security benefit amount if you only performed federal service under a system such as the Federal Employees’ Retirement System (FERS). Social Security taxes are withheld for workers under FERS.

How it Works

• • • Social Security benefits are intended to replace only some of a worker’s pre-retirement earnings. We base your Social Security benefit on your average monthly earnings adjusted for average wage growth. We separate your average earnings into three amounts and multiply the amounts using three factors to compute your full Primary Insurance Amount (PIA).

    • For example, for a worker who turns 62 in 2022, the first $1,024 of average monthly earnings is multiplied by 90%; earnings between $1,024 and $6,172 are multiplied by 32%; and the balance by 15%. The sum of the three amounts equals the PIA, which is then decreased or increased depending on whether the worker starts benefits before or after full retirement age (FRA).

    • This formula produces the monthly payment amount.

    • When we apply this formula, the percentage of career average earnings paid to lower-paid workers is greater than higher-paid workers. For example, workers age 62 in 2022, with average earnings of $3,000 per month could receive a benefit at FRA of $1,553 (approximately 51%) of their pre-retirement earnings increased by applicable cost of living adjustments (COLAs). For a worker with average earnings of $8,000 per month, the benefit starting at FRA could be $2,843 (approximately 35%) plus COLAs.

    • However, if either of these workers start benefits earlier than their FRA, we’ll reduce their monthly benefit.

Some Exceptions

The Windfall Elimination Provision doesn’t apply if:

• • • You’re a federal worker first hired after December 31, 1983.

    • You’re an employee of a non-profit organization who was exempt from Social Security coverage on December 31,1983. This does not apply if the non-profit organization waived exemption and did pay Social Security taxes, but then the waiver was terminated prior to December 31, 1983. 

    • Your only pension is for railroad employment. SSA.gov

Windfall Elimination Provision

• • • • The only work you performed for which you didn’t pay Social Security taxes was before 1957.

      • You have 30 or more years of substantial earnings under Social Security.

• The Windfall Elimination Provision doesn’t apply to survivors benefits. We may reduce spouses, widows, or widowers benefits because of another law. For more information, read Government Pension Offset (Publication No. 05-10007). Social Security years of substantial earnings

• If you have 30 or more years of substantial earnings, we don’t reduce the standard 90% factor in our formula. See the first table that lists substantial earnings for each year.

• The second table shows the percentage used to reduce the 90% factor depending on the number of years of substantial earnings. If you have 21 to 29 years of substantial earnings, we reduce the 90% factor to between 45% and 85%.

• To see the maximum amount we could reduce your benefit, visit www.ssa.gov/benefits/retirement/planner/wep.html

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