Windfall Elimination Provision (WEP)

For more information on this subject see our seven page guide on “Windfall Elimination Provision.”  It will give you a complete detail of how this provision affects you and the way Social Security figures your benefit amount – click here

Your Social Security retirement or disability benefit may be reduced

If you work for an employer who does not withhold Social Security taxes from your salary, such as a government agency or an employer in another country, the pension you receive based on that work could cause a reduction in your Social Security benefits.

The Windfall Elimination Provision affects how Social Security figures the amount of your retirement or disability benefit check if you receive a pension from work not covered by the Social Security program.  They use a different formula to figure your benefit check amount, resulting in a lower Social Security benefit than you otherwise would receive.

To understand how the formula is different, you need to understand how Social Security figures your monthly benefit check.  For a complete step-by-step guide on how Social Security figures your benefit amount, see our 15 page guide on “How Social Security Figures Your Benefit Amount” – click here.

They take your average monthly lifetime earnings and using percentages and bend points they convert those average monthly lifetime earnings to a primary insurance amount.  The primary insurance amount is the amount you would receive, if you retired at your full retirement age or filed for a disability benefit check.

When your benefits may be affected

The Windfall Elimination Provision primarily affects your benefit check if you earned a pension in any job where you did not pay Social Security taxes and you qualify for a retirement or disability benefit from Social Security.

The Windfall Elimination Provision may 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 did not pay Social Security taxes after 1985.  This applies even if you are not yet receiving the pension.

Why a different formula is used

Social Security benefits only replace a percentage of your pre-retirement earnings.  Due to the way Social Security figures your benefit amount, lower paid workers get a higher rate of return on their Social Security tax dollars than highly paid workers.  Lower paid workers could get a Social Security benefit that equals about 55 percent of their pre-retirement earnings.  The average replacement rate for highly paid workers is about 25 percent.

Before 1983, people who worked mainly in a job not covered by Social Security had their Social Security benefits calculated as if they were long-term, low-wage workers.  They had the advantage of receiving a Social Security benefit representing a higher percentage of their earnings, plus a pension from a job where they did not pay Social Security taxes.  Congress passed the Windfall Elimination Provision to remove that advantage.

Below are a few exceptions to the Windfall Elimination Provision

The Windfall Elimination Provision does not apply to survivors benefits.  It also does not apply if:

  • You are a federal worker first hired after December 31, 1983 or
  • You were employed on December 31, 1983, by a nonprofit organization that did not withhold Social Security taxes from your pay at first, but then began withholding Social Security taxes from your pay or
  • Your only pension is based on railroad employment or
  • The only work you did where you did not pay Social Security taxes was before 1957 or
  • You have 30 or more years of substantial earnings under Social Security.

Social Security also guarantees that your monthly check amount will not be reduced by more than one-half of your non-covered pension amount.