If you’ve ever worked for an employer who doesn’t withhold Social Security taxes from your salary, you need to consider the Windfall Elimination Provision when determining how much you’ll earn each month from your Social Security retirement benefit.
The Windfall Elimination Provision (WEP) can affect how the Social Security Administration (SSA) calculates your retirement or disability benefit. If you work for an employer who doesn’t withhold Social Security taxes from your salary, such as a government agency or an employer in another country, any retirement or disability pension you get from that work can reduce your Social Security benefits.
The Social Security Administration uses the Windfall Elimination Provision in an attempt to eliminate this “windfall” of having a Social Security retirement benefit and a pension that is outside the Social Security system. Of course the SSA has guidelines as to who this provision does and does not apply to.
The Windfall Elimination Provision can apply if:
- You reached 62 after 1985; or
- You became disabled after 1985; and
- You first became eligible for a monthly pension based on work where you didn’t pay Social Security taxes after 1985.
The Windfall Elimination Provision doesn’t apply if:
- You’re a federal worker first hired after December 31, 1983;
- You were employed on December 31, 1983, by a nonprofit organization that didn’t withhold Social Security taxes from your pay at first, but then began withholding Social Security taxes;
- Your only pension is for railroad employment;
- The only work you performed for which you didn’t pay Social Security taxes was before 1957; or
- You have 30 or more years of substantial earnings under Social Security.
Many people affected by the Windfall Elimination Provision greatly overestimate how much their Social Security benefits will be reduced. It’s important for retirement purposes for you to know the actual amount you’ll get each month from Social Security to ensure you properly and accurately plan for retirement.
In order to calculate that amount you’ll actually receive from your Social Security retirement benefit you’ll need to follow these steps.
Step 1 – Determine your regular, unreduced benefit amount
In order to figure out how much you’ll earn from your Social Security retirement benefit, you first need to log into your “mySocialSecurity” account and obtain your statement. Click here to find out how to set up your “mySocialSecurity” account if you haven’t already.
The amount listed on your statement is total benefit amount and has not had the Windfall Elimination Provision applied to it yet so you’ll need to do that manually.
Step 2 – Determine your Windfall Elimination Provision reduction amount
The SSA has a handy chart here to help you determine the maximum amount your benefit may be reduced because of the Windfall Elimination Provision. In order to use this chart, you’ll need to know how many years you you paid Social Security tax on substantial earnings.
The SSA chart shows the number of years you paid Social Security tax on substantial earnings along the top, and if you’ve reached 30 years, there’s no reduction in your Social Security retirement benefit.
Next you’ll need to know when you’ll be eligible for early retirement (currently 62). Locate that year on the left-hand side of the column and go over to the correct row based on the number of years you paid Social Security tax on substantial earnings. The amount listed is the maximum that your Social Security retirement benefit may be reduced by.
Step 3 – Do the math
Take your regular, unreduced benefit amount you found on your “mySocialSecurity” statement and reduce it by the number you found on the Windfall Elimination Provision chart. The current maximum reduction is $442.50 so it’s not as big as many people fear, but it’s something you want to know about and be able to calculate for yourself.
If you have any questions about maximizing your Social Security retirement benefits, please contact me here.