How does the substantial earnings years of credit work for Windfall Elimination Provision?
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Rounding out our series of articles about the Windfall Elimination Provision, or WEP, I thought we should talk a bit about the maximum impact that WEP can have on you. In other articles we’ve discussed this in part, but it hasn’t necessarily been fleshed out completely. As you may know, the maximum WEP reduction is equal to the lesser of 50% of the first “bend point” for each year or 50% of the amount of the pension from income that was not subject to Social Security taxation. In 2015 this is $413 per month at most. What’s important to know is that this reduction is against your Primary Insurance Amount (PIA), not necessarily against your benefit amount. Depending upon when you file relative to your Full Retirement Age, the WEP impact to your benefit could be more or less than that amount. Wait – what? As you may recall, the […]
We’ve reviewed how WEP impacts your own benefits in prior articles. Briefly, when you’re receiving a pension based on work that was not covered by Social Security, your own Primary Insurance Amount will be reduced by as much as $413 per month (2015 figures) or 50% of the pension, whichever is less. But can this reduction to benefits affect my dependents’ benefits as well? Since the nature of the WEP calculation is to reduce your Primary Insurance Amount (PIA), that means any benefit that is based on your PIA will also be reduced. So, if your spouse is planning to receive spousal benefits based on your earnings record and your PIA is reduced due to WEP, the spousal benefit available to your spouse will also be reduced. For example, Jennifer, age 66 was a teacher for 25 years, and her employment was not covered by Social Security taxes. In addition […]
If you are receiving a pension from a non-Social Security covered job and you’re also entitled to receive Social Security benefits, the Windfall Elimination Provision (WEP) may reduce your Social Security benefit. There are ways that this WEP reduction can be eliminated. How to Eliminate WEP As discussed in other articles, it is possible to reduce the impact of WEP by working in a Social Security-covered job and earning “substantial earnings” ($22,050 in 2015) for 21 or more years. For the first 20 years, there is no reduction to the WEP impact. For each year of substantial earnings greater than 20, the impact of WEP is reduced by 10%. When a total of 30 years of substantial earnings have been recorded on your earnings record, WEP is eliminated completely. Another way to eliminate WEP is when the primary numberholder (the individual subject to WEP) dies. This is because WEP only […]
In this blog we’ve covered the Windfall Elimination Provision (WEP) from many different angles. Here we’ll go into some more depth on the actual calculation of the WEP, including how some of the factors are determined. As you are likely aware, the Windfall Elimination Provision or WEP impacts your Social Security benefit when you are receiving a pension based on work where Social Security tax was not applied to the earnings. The point of WEP is ostensibly to act as an offset, since the reason no Social Security tax was applied to the earnings is because the pension is intended to replace Social Security benefits for that worker. WEP impact is applied as a reduction to the first bend point of the calculation of the Primary Insurance Amount. (Calculation of the PIA is explained further here.)
When your Social Security retirement benefit is subject to the Windfall Elimination Provision (WEP), you’re likely painfully aware of the reduction to your own benefit by this provision. What you may not be aware of is that the effect goes beyond your own benefit – your spouse’s and other dependents’ benefits are also impacted by this provision. However, the impact of WEP does not continue after your death.
WEP, in Social Security parlance, is the Windfall Elimination Provision. So, if that’s all you wanted to know, you’re good to go. You wanted more though, right? Okay, here we go: WEP is the provision of the Social Security rules that provides for reduction of your Social Security benefit when you are receiving a pension from a job that was not covered by Social Security. Usually these jobs are government-related, including state and federal government employees, teachers, and the like. In addition, pensions from work done in other countries would also fit into this category, as long as the work was not covered by US Social Security. How it Works When your Social Security benefit is calculated, if you’ll recall from this earlier article on benefit calculation, your Average Indexed Monthly Earnings (AIME) factor is divided into three portions, bounded by bend points. The first bend point is multiplied by […]
In prior articles we have discussed the Windfall Elimination Provision (WEP) which has the effect of reducing a portion of your Social Security retirement benefit if you’ve worked in a job that was not covered by Social Security which also provides a pension. This article deals with two ways that you can remove the impact of the WEP from your benefit – neither of which is simple, and neither of which can be done after you’ve retired. The two methods are: Add years of “substantial earnings” to your record Take a lump sum distribution from your pension before you are eligible to receive the pension. Adding Substantial Earnings Years If you have the opportunity to work in a job that is covered by Social Security withholding and you have “substantial earnings” from that job, each year that you work in this SS-covered job adds to your ability to begin eliminating […]
Image by London Permaculture via Flickr If you’re subject to the Windfall Elimination Provision (WEP), your Social Security retirement benefit can be reduced in the first bend point to as little as 40% from the normal 90% rate. The WEP applies if you worked in a job that did not require Social Security withholding in addition to a job that was subject to Social Security withholding. However, if you’ve worked in the Social Security-covered job for a significant amount of time and the amount of earnings you received there was substantial, it is possible that the reduction due to WEP could be lessened and possibly eliminated. According to the Social Security Administration, substantial earnings is defined as an amount equal or above the amounts shown in the table below: Year Substantial Earnings 1937-1954 $900 1955-1958 $1,050 1959-1965 $1,200 1966-1967 $1,650 1968-1971 $1,950 1972 $2,250 1973 $2,700 1974 $3,300 1975 $3,525 […]