If you work for an employer that withholds Social Security taxes from your paycheck, the general expectation is that you will receive those benefits when you are eligible—given that you are found to be disabled or are retire.
But did you know that in some situations, you will not receive all of those benefits?
Okay, here’s why: Congress enacted what’s called the Windfall Elimination Program (or, WEP) with the belief that you should not receive a Social Security benefit as though you are a low-paid worker, plus receive a government pension from non-SS covered employment. This is referred to as “double dipping.”
There are three general criteria for why you would not receive all the benefits:
- You work or worked for a state or local government in non-SS-covered employment.
- You are entitled to a government pension from that employment. The Social Security Administration (SSA) deems you to be “entitled to a pension” when you file an application for the pension and a benefit is payable.
- You are entitled to a Social Security retirement or disability benefit.
So, how much will your benefit be reduced? The worst-case scenario is a reduction of 60% if you have 20 years or less of Social Security employment at the Substantial Earnings level.
There is no reduction if you have 30 or more years of Substantial Earnings. (Substantial earnings amounts are determined by SS for each year of employment. For 2015, the amount is $22,050. You can check out the Substantial Earnings table at www.socialsecurity.gov/retire2/wep-chart.htm.)
The good news is that the WEP’s reduction of your SS benefits may be no more than one-half of the government pension to which you are entitled in your initial month of entitlement to the pension.
If you are considering changing your employment from Social Security covered employment to non-Social Security covered employment, you may want to consider what that will do to your ability to collect your Social Security benefits when you become eligible. Need help with this? Give us a call.