Social Security is a complex program that has undergone a number of changes since the program was signed into law in 1935.
One of those changes? The Windfall Elimination Provision (WEP), which came to life roughly four decades ago. This provision affects how the Social Security Administration calculates the retirement or disability benefits of some people who receive a pension.
Put more bluntly: If the WEP applies to you, your Social Security benefits might be reduced.
Today, I’m going to introduce you to the Windfall Elimination Provision, including how it works, why it exists, and who it impacts.
Who Does the Windfall Elimination Provision Affect?
The Windfall Elimination Provision applies to most workers who receive both a pension from “noncovered work” and Social Security retirement benefits based on fewer than 30 years of substantial earnings.
Noncovered workers are considered to be any of the following:
- State and local government employees covered by other retirement systems
- Most permanent civilian federal employees hired before 1984 who are covered by the Civil Service Retirement System or another retirement plan
- Workers covered by the Railroad Retirement system
- Domestic, elector, or farm workers with earnings below set thresholds
- People with low net earnings from self-employment
- Certain nonimmigrants
It affects retired or disabled worker beneficiaries and their eligible dependents. However, it does not change survivor benefits.
As of December 2023, the WEP affected around 3% of all Social Security beneficiaries.
Related: How Are Social Security Benefits Taxed?
Why Was the Windfall Elimination Provision Enacted?
Social Security calculates benefits in a way that provides lower-earning workers with a better relative benefit compared to higher-earning workers.
Social Security’s benefit formula adjusts (indexes) a worker’s covered earnings to reflect the rise in standard of living over their working years, then adds up the 35 years with the highest indexed earnings, and divides them by the total number of months across those years. (If a person has fewer than 35 years of covered earnings, they receive a zero for each year under 35 when calculating the average.) The number is then rounded down to provide a figure called “average indexed monthly earnings,” or AIME.
Here’s where the weighting comes in. A person’s primary insurance amount, or PIA (your benefits before factoring in early retirement, delayed retirement credits, cost-of-living adjustments, etc.), is calculated by multiplying different brackets of AIME by different factors. These brackets are adjusted every year.
In 2024, the calculation goes like this:
- 90% of the first $1,174 of AIME, plus
- 32% of AIME above $1,174 and through $7,078, plus
- 15% of AIME above $7,078
In other words, at certain thresholds, higher pay has a diminishing impact on your Social Security benefits.
The thing is, a flaw in the Social Security benefit formula resulted in an advantage for some individuals who were high earners for many years, but who only worked a portion of their career in jobs covered by Social Security. These people would have had a number of zeros in their average monthly covered earnings, but they still earned enough in covered jobs to benefit from the weighted low end of the calculation.
The Windfall Elimination Provision was enacted in 1983 to help eliminate this unintended advantage—by specifically targeting workers who also had pensions from noncovered employment.
Related: 10 States That Tax Social Security Benefits
How Does the Windfall Elimination Provision Currently Work?
If a person becomes eligible for Social Security benefits in 2024, and they have 20 or fewer years of covered earnings, the Windfall Elimination Provision changes the formula. Specifically, the 90% factor for the first $1,174 of AIME becomes 40%, or a reduction of up to $587—the maximum amount WEP can reduce benefits by in 2024.
After that, the factor rises by 5 percentage points for each year of covered employment over 20 years (thus, 21 years = 45%, 22 years = 50%, etc.). The WEP becomes fully phased out at 30 years of covered employment.
Additionally, under WEP, the resulting reduction in benefit amount it causes can’t exceed more than half of one’s noncovered pension. So if you had a noncovered pension of, say, $200 per month, your Social Security benefits could only be reduced by a maximum of $100 per month.
A few examples based on different pension sizes:
- If you had a monthly noncovered employer pension of $500 before taxes, your Social Security benefit might be reduced by up to $250.
- If you had a monthly noncovered employer pension of $1,000 before taxes, your Social Security benefit might be reduced by up to $500.
- If you had a monthly noncovered employer pension of $1,500 before taxes, your Social Security benefit might be reduced by up to $587.
- If you had a monthly noncovered employer pension of $2,000 before taxes, your Social Security benefit might be reduced by up to $587.
You can estimate the most your benefit could decrease at SSA.gov.
Related: 10 Common Social Security Mistakes You Should Know
Is the Windfall Elimination Provision the Same as the Government Pension Offset?
No. The Windfall Elimination Provision and the Government Pension Offset (GPO) are two separate provisions that apply to different groups of people:
- The WEP can affect people who receive both a non-covered pension and Social Security retirement or disability benefits
- The GPO can affect people who receive both a government pension plus Social Security survivor or spousal benefits
Also:
- The WEP can not completely wipe out a person’s benefits.
- The GPO can completely wipe out a person’s benefits.
It’s an understandable mistake. People often talk about these provisions together because both involve pensions and a reduction in Social Security payments.
Related: 11 Ways to Avoid Taxes on Social Security Benefits
Is the Windfall Elimination Provision Going Away?
Some people want the Windfall Elimination Provision to end, saying that it’s an unfair penalty against people who pay Social Security taxes but also work other jobs that don’t pay into Social Security.
The Social Security Fairness Act would eliminate the Windfall Elimination Provision if it becomes law. The act, reintroduced by Reps. Abigail Spanberger (D-Va.) and Garret Graves (R-La.) in January 2023, remains alive in Congress as of this writing.
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