Social Security can be confusing enough with the various options on whether you should file for your own benefit, a spousal benefit, file and suspend one’s benefits (if you are eligible), or just when to claim the benefit. To add to this complexity, there are additional considerations that teachers, governmental employees and even workers that receive a foreign pension need to consider. The Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) can reduce these workers’ Social Security benefit, which adds to the complexity of deciding how one should file for Social Security.
Windfall Elimination Provision (WEP)
The WEP only applies if you are claiming your own Social Security benefit, and you qualify for a pension from work where the employer did not withhold Social Security taxes from your salary. If subject to the WEP, a different equation is used to calculate your Social Security benefit, which can ultimately reduce your benefit. How much of a reduction depends on how many years of work you have on record for the employer that did pay Social Security taxes. The WEP is limited however to only reducing your Social Security benefit by half of your pension benefit. For further information on how to calculate your Social Security benefit and how much of a reduction you may be subject to, follow this link to the Social Security Administration’s online calculator.
Government Pension Offset (GPO)
The GPO only applies if you are claiming someone else’s Social Security benefit, and qualify for a pension from work where the employer did not withhold Social Security taxes. If subject to the GPO, the spousal/widows benefit would be reduced by two-thirds of the pension amount that you are receiving. For example, if you receive a monthly pension of $600 from a previous employer where there was no Social Security withheld during employment, two-thirds of that pension benefit, or $400, would be deducted from your spousal Social Security benefit. So, if you would be eligible for a spousal benefit of $500 a month, $400 would be deducted due to the GPO and you would end up receiving $100/month from Social Security.
How Does This Affect Me
Given that you meet the qualifications previously mentioned for the WEP or GPO, what is the bottom line, and how do these potential reductions affect you and your Social Security benefit? Well, with most items related to tax law, it depends. To start, the WEP & GPO do not apply to teachers and government workers in all states In order to be subject to the WEP and GPO, the pension benefit being received must be from an employer that did not withhold Social Security taxes. Some states have elected to participate in the Social Security program and Social Security taxes have been withheld on teachers’ and government workers’ income. Additionally there are further exclusions from the WEP and GPO based upon the type of work you may have done, how long you have done this work, and when you qualified for certain benefits. But assuming that there are no special circumstances, it is important to be aware of the WEP and the GPO and the reductions they may have on your Social Security benefit. Depending on how large your pension benefit, base Social Security benefit and spousal benefit are, will all impact the decision on what filing method will be the most beneficial for you.
If you are considering filing for your own Social Security benefit, the longer you worked and the more you earned while withholding for Social Security, will help reduce the amount of your own Social Security benefit that will be subject to the WEP. If you are considering filing for a spousal Social Security benefit, the larger your pension benefit is, the more the potential spousal Social Security benefit may be reduced due to the GPO.
Given the many variables and complexities with choosing the best Social Security filing status, please reach out to your trusted advisor at D3 Financial Counselors for additional questions regarding these reductions and what filing method may work best for you.
–Brett Spencer MS CFP®