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Social Security Tretments On Pensions

I. Windfall Elimination Provision, WEP

Teachers and government workers who also have earnings from jobs that are paid into Social Security.

The WEP reduces the worker’s PIA; therefore, the dependent’s Social Security benefit amounts are reduced.

It is based on the number of years of substantial earnings the worker has in Social Security covered employment.

1). Retirees eligible to collect Social Security benefits and a non-covered pension, determine how many years of substantial earnings they have.

2). The total number of years with substantial earnings is added up to determine the corresponding PIA adjustment percentage.

When calculating the PIA, the amount of AIME up to the first bend point is multiplied by 90%. In the WEP PIA calculation, this percentage is replaced by the PIA adjustment percentage corresponding to the total number of years of substantial earnings.

II. Government Pension Offset, GPO

The person’s benefit as a spouse, widow, or widower is offset dollar for dollar by the amount of his or her own retirement benefit.

It was enacted to treat government employees who receive a pension and do not pay Social Security taxes on their earnings, similar to those who work in the private sector and pay Social Security taxes.

Also, to accomplish the same purpose as the offset under dual entitlement provision.

Under the dual entitlement provision, the reduction is dollar for dollar whereas under GPO there is a two-third reduction.

Social Security will calculate the GPO reduction as if they had chosen to get monthly benefit payment from the pension.

  1. If the worker receives a government pension that is not based on earnings.
  2. If the worker is a federal, state, or local government employee whose government pension is based on a job where he or she was also paying social security taxes; and
  • He or she filed for and was entitled to spouse’s, widow’s or widower’s benefits before April 1, 2004; or
  • His or her last day of employment (that his or her pension is based on) is before July 1, 2004; or
  • He or she paid Social Security taxes on his or her earnings during the last 60 months of government service.

Test your knowledge

Welcome to your Social Security Treatments On Pensions

1. 
When is WEP applied to a retired person?

2. 
How much GPO is applicable to Kate's spousal benefits from the information below?

Kate is a retired federal employee and paid no social security taxes at her federal job. She received a lump sum of $108,000 from her pension instead of $600 per month for 15 years when she retired. Kate's husband, James, has a full retirement of $2,200 per month.

3. 
Based on the information below, if someone received dependent benefits on Margret's PIA. Will the below information impact that person's dependent benefits? 

Margret had worked for the federal government before 1984  under the Civil Service Retirement System (CSRS). She has earned a pension where she was working as a federal employee. Margret had also worked in the private sector and a self-employed as a florist for more than ten years. She paid her FICA taxes while working as a self-employed and an employee in the private industry. Margret plans to retire at age 66 (Assume FRA is also 66).

4. 
From the information below, let's assume Margret is under Federal Employee Retirement System (FERS), not Civil Service Retirement System (CSRS). Which of the following(s) is/are correct about Margret?

Margret had worked for the federal government before 1984  under the Civil Service Retirement System (CSRS). She has earned a pension where she was working as a federal employee. Margret had also worked in the private sector and a self-employed as a florist for more than ten years. She paid her FICA taxes while working as a self-employed and an employee in the private industry. Margret plans to retire at age 66 (Assume FRA is also 66).

5. 
Based on the information below, which of the following statement(s) is/are correct about Margret?

Margret had worked for the federal government before 1984  under the Civil Service Retirement System (CSRS). She has earned a pension where she was working as a federal employee. Margret had also worked in the private sector and a self-employed as a florist for more than ten years. She paid her FICA taxes while working as a self-employed and an employee in the private industry. Margret plans to retire at age 66 (Assume FRA is also 66).

6. 
What is Kevin's WEP PIA based on the information below?

Kevin has worked in the private industry, where he earned 25 years of substantial earnings. He also taught computer science for 15 years at a University in California, where he earned a pension and paid no FICA taxes. Assume his AIME at age 66 FRA is $6,000. The percent applied to his years of substantial earnings is 65%. Furthermore, the amounts for the bend points are $895 and $5,397.

7. 
What was the maximum reduction by WEP  to Security Security benefits for 2018?

8. 
Which of the following person will not impact by the Windfall Elimination Provision (WEP)?

9. 
How much of a reduction to spousal benefits when GPO is applicable?

10. 
What provision when someone's government pension reduces or offsets Social Security spousal payments they receive on their spouse's work record?

11. 
Which of the following(s) is/are correct about Kate from the information below?

Kate is a retired federal employee and paid no social security taxes at her federal job. She received a lump sum of $108,000 from her pension instead of $600 per month for 15 years when she retired. Kate's husband, James, has a full retirement of $2,200 per month.

12. 
Which of the following WEP affect?

13. 
How much is Kate's spousal benefit from the information below?

Kate is a retired federal employee and paid no social security taxes at her federal job. She received a lump sum of $108,000 from her pension instead of $600 per month for 15 years when she retired. Kate's husband, James, has a full retirement of $2,200 per month.

14. 
How much is Kate's total benefit per month from the information below?

Kate is a retired federal employee and paid no social security taxes at her federal job. She received a lump sum of $108,000 from her pension instead of $600 per month for 15 years when she retired. Kate's husband, James, has a full retirement of $2,200 per month.