How Do You Avoid the Social Security Windfall Penalty?

In this article...
  • The Windfall Elimination Provision (WEP) can result in reduced Social Security benefits in certain cases. Find out what it is and whether it might affect you.
Retired couple leaning on a fence at the beach

The Social Security windfall penalty has to do with retirement benefits, and it refers specifically to the Social Security Windfall Elimination Provision (WEP). Find out what the WEP is and how it can affect your benefits.

What Is the Windfall Elimination Provision?

The Windfall Elimination Provision is a reduction in Social Security benefits that happens as a result of not paying Social Security taxes on a pension. If you worked for a federal, state or local government or nonprofit organization and are eligible for a pension as a result of this work—and you didn't pay Social Security taxes—this can affect the amount of your Social Security benefits.

This reduction in benefits is referred to as the Windfall Elimination Provision (WEP).

Who Is Affected by the WEP?

According to the Social Security Administration (SSA), the WEP can affect you if you earned a retirement or disability pension from an employer who did not withhold Social Security taxes and you qualify for Social Security retirement benefits or disability benefits from work in other jobs for which you did pay Social Security taxes.

The WEP can also affect you if you meet any of these criteria:

  • You turned 62 after 1985
  • You became disabled after 1985
  • You became eligible for a monthly pension after 1985 and it was based on work you did where you didn't pay Social Security taxes. This applies to you even if you're still working.

How Do You Avoid the Social Security Windfall Penalty?

The Social Security Windfall Elimination Provision can't be entirely avoided. It's just something that happens if you meet the criteria for it. However, there are some situations where the WEP doesn't apply. They include:

  • You're a federal worker or an employee of a nonprofit organization who was hired after December 31, 1983.
  • Your only pension is from railroad employment.
  • The only work you performed where you didn't pay Social Security taxes was before 1957.
  • You have 30 or more years of what's called "substantial earnings" under Social Security.

What to Keep in Mind About the WEP

Remember that Social Security earnings are only designed to replace part of a worker's pre-retirement earnings, so you shouldn't expect to collect Social Security benefits that are equal to what you earned when you were working.

For more information on how the SSA calculates Social Security benefits, the WEP and ways to avoid the Social Security windfall penalty, you can consult this WEP fact sheet.