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WEP Impact Calculation Factors

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.)  

Windfall Elimination Provision May Impact Spousal Benefits but not Survivor Benefits

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. 

What is WEP?

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 […]

How to Reduce or Eliminate Windfall Elimination Provision Impact to Your Social Security Benefit

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 […]

Substantial Earnings With Regard to WEP

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 […]

Windfall Elimination Provision for Social Security

If you have worked in a job where your pay was subject to Social Security tax withholding, and also have worked in a job where Social Security tax is not  withheld, such as for a government agency or an employer in another country, the pension you receive from the non-Social Security taxed job may cause a reduction in your Social Security benefits.  This reduction is known as the Windfall Elimination Provision (WEP) – and it’s named such since it was enacted to eliminate the “windfall” that would otherwise be received by a worker who fit into this description.  Without the WEP, the worker would effectively be double-dipping by receiving full benefits from both plans. This provision primarily affects Social Security benefits when you have earned a pension in any job where you did not pay Social Security tax and you also worked in other jobs long enough to qualify for […]