What is the windfall elimination provision?
The windfall elimination provision (WEP) is a rule that requires the Social Security Administration to reduce Social Security retirement benefits for people who also receive money from certain noncovered pensions. The number of years you contribute to Social Security can affect how much your benefits are reduced.
The WEP doesn't affect everyone with a pension.
» MORE: When does Medicare start?
How the windfall elimination provision (WEP) works
Social Security retirement benefits and disability benefits are based on how much a person has contributed to Social Security via payroll taxes on their past earnings.
However, some employers that offer pensions do not withhold Social Security taxes from employees’ pay. This can have an important effect on the person's Social Security benefits calculations.
If someone worked for two employers before they retired — one that did withhold Social Security taxes and one that didn’t withhold them — the SSA only recognizes the income on which the employee paid Social Security taxes when it calculates benefits..
In other words, any income from an employer that didn’t withhold Social Security taxes is excluded from the SSA’s calculation of Social Security benefits.
The SSA calculates benefits in a way that allows beneficiaries who earned less in their lifetime to receive a higher percentage of their average earnings.
For example, someone with an average indexed monthly earnings of $3,800 from their 35 highest-earning years of qualified work may get a monthly Social Security benefit of $1,896.92, which is just below 50% of their average earnings.
On the other hand, someone with an average indexed monthly earnings of $8,200 per month in earnings may get $3,114.18 per month, which is just under 38% of their average earnings.
Although the person with the higher average earnings receives more dollars per month than the lower earner does, the higher earner's benefit is a smaller percentage of their earnings.
Before the windfall elimination provision existed, people with noncovered pensions appeared to the SSA to have earned less income than they actually did. The Social Security Administration would thus calculate their benefits as if they were low-wage workers during those years, which led to Social Security benefits that were a higher percentage of their earnings.
To offset the additional income, the WEP requires the SSA to reduce retirement and disability benefits to account for those noncovered pensions.
Did you know...
The WEP doesn’t apply to Social Security survivors benefits.
» MORE: Estimate your benefits with our Social Security calculator
How much can the windfall elimination provision reduce my Social Security benefits?
There are limitations on how much the WEP can reduce your benefits. The SSA can’t:
Cut your Social Security retirement benefit to $0.
Decrease your Social Security benefits by more than half of your monthly pension payment.
🤓Nerdy Tip
The WEP applies to a person’s primary insurance amount (PIA), which is the full benefit they would receive if they retire at full retirement age. Cost-of-living adjustments and other standard adjustments are applied after the WEP reduction.
Who does the windfall elimination provision affect?
If you will receive Social Security benefits because you paid into the program and also will receive funds from a noncovered pension, the WEP likely applies to your Social Security retirement and disability benefits if:
You turned 62 after 1985.
You met the SSA’s definition of disabled after 1985.
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Exceptions to the windfall elimination provision
In some cases, the WEP won’t apply to you, even if you have a noncovered pension. You may get an exception if you:
Had at least 30 years of substantial earnings on which you paid Social Security taxes.
Were hired as a federal worker after Dec. 31, 1983.
Only have a pension from working for a railroad.
Have a noncovered pension only for work performed before 1957.
Worked for a nonprofit organization that was exempt from Social Security taxes.
» MORE: Thinking of taking Social Security early? What to know
How to calculate the windfall elimination provision
Your Social Security retirement benefits are based on, among other things, how much you earned before retiring.
The SSA first looks at your 35 highest-earning years in the workforce to calculate an average of how much you earned monthly when inflation is applied. This is your average inflation-indexed monthly earnings (AIME).
The Social Security Administration applies three bend points to the AIME. The bend points for 2024 are 90% of the first $1,174, 32% of any amount between $1,174 and $7,078, and 15% of any amount above $7,078.
Accordingly, the SSA multiplies the portion of your AIME at each bend point by a fixed percentage: 90% of your income below the first bend point, 32% of your income between the first and second bend point and 15% of your income above the second bend point. The sum of these amounts is your primary insurance amount (PIA), which is your retirement benefit if you retire at full retirement age.
🤓Nerdy Tip
The bend points change every year, so be sure you’re using the correct amounts when calculating a WEP reduction.
The windfall elimination provision reduces the first of those percentages. How much the SSA reduces it depends on how many years you paid Social Security taxes. The most it can fall is from 90% to as low as 40% if you spent fewer than 20 years in jobs on which you paid Social Security taxes. The SSA raises that 40% by 5 percentage points for every year past 20 years that you have earnings on which you paid Social Security tax.
Years of earnings on which you paid Social Security tax | Adjusted percentage applied to your PIA |
|---|---|
30 or more | No adjustment (remains at 90%) |
29 | 85% |
28 | 80% |
27 | 75% |
26 | 70% |
25 | 65% |
24 | 60% |
23 | 55% |
22 | 50% |
21 | 45% |
20 or fewer | 40% |
Tap to see an example of the WEP at work
For example, let’s say you worked for 35 years before retiring. You spent 10 of those years in a job where you weren’t subject to Social Security taxes and 25 years in a job where you did contribute to Social Security. Your average inflation-indexed monthly earnings (AIME) for those 35 years was $2,935.
The SSA applies its bend points to this amount to calculate your monthly retirement benefit at full retirement age. The table below shows the math using the bend points in 2024.
Bend points | Percentage | Formula | Amount |
|---|---|---|---|
$0 - $1,174 | 90% | $1,174 x 0.90 | $1,056.60 |
$1,175 - $7,078 | 32% | $1,761 x 0.32 | $563.52 |
$7,079 and above | 15% | $0 x 0.15 | $0 |
Monthly benefit | $1,620.12 |
However, because you're getting a pension from an employer for whom you worked for 10 years without paying Social Security taxes, the WEP reduces the 90% in the first bend point to 65%. This means the portion of your benefit that is based on the first bend point drops from $1,056.60 to $763.10, lowering your Social Security benefit to $1,326.62.
» MORE: Pension lump sum or annuity? How to decide
Tips for managing the WEP
If the WEP might apply to you, there are a few things you can do to minimize its impact.
Find work that contributes to Social Security. By increasing the number of years you contribute to Social Security, you lessen the impact of the WEP on your retirement benefits.
Keep working after you reach full retirement age. Even part-time work that contributes to Social Security can increase your benefit over time. The SSA will recalculate your benefit as you continue to work.
Increase your savings. Saving more now can help offset the reduction in your Social Security benefits. Calculate your estimated reduction to see how much you’ll need to supplement each month during retirement.
» MORE: Social Security COLA: How it works
