Social Security Fairness Act

[BobKamman]

I'm surprised no one has mentioned this -- including my clients who would be affected.  I never really understood how the WEP and GPO worked.  I have clients who are retired government workers and did not pay into Social Security for much of their working life.  But it always seems to me that some of them get more SS than they should anyway, and others get too little.  

One article says that 28 million SS beneficiaries would be affected by this bill.  The Senate is still trying to find time to vote on it this week.  It needs 60 votes, so passage is not certain.  It's a budget buster, but who cares?

On November 12, 2024, the House passed H.R. 82, the Social Security Fairness Act of 2023, by roll call vote, 327-75, under suspension of the rules. The bill now moves to the Senate for consideration. The Senate companion bill, S. 597, is pending in the Committee on Finance.

H.R. 82, as passed by the House, would:

• repeal the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) provision, both of which can reduce Social Security benefits when someone receives a pension based on work that was not covered by Social Security; and

• apply with respect to benefits payable for months after December 2023.

[qbteachmt]

"The WEP impacts about 2 million Social Security beneficiaries and the GPO nearly 800,000 retirees"

From CBS. 

[BobKamman]

I might have mistaken the decimal point for a flyspeck

[BobKamman]

It looks like the Senate is going to pass this and send it to the President.  If you aren't ready to identify and advise clients who are subject to WEP and GPO, now would be a good time to start your education.  

[Taxes-by-Rocky]

I suspect WEP and GPO were originally put in place for a reason (so no one gets to double dip).

Sure, you may have paid in to both over time and perhaps that should be considered in your benefit. 

It will be interesting to see how the law plays out considering the way plans are structured today.

[abctax55]

Personal example:

My husband worked as a firefighter for 30 years.

He also worked for ten year in the private sector, paying into SS for long enough to qualify to receive Social Security.

His SS benefits have been cut in half because of his FD pension.

What he paid into SS for forty quarters wasn't 'cut in half' because he also worked for the Fire Dept.

I don't view this as 'double dipping'. 

[TaxGuyBill]

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@abctax55 wrote:

His SS benefits have been cut in half because of his FD pension.

What he paid into SS for forty quarters wasn't 'cut in half' because he also worked for the Fire Dept.

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I am NOT arguing for or against it, but just giving an explanation of why WEP existed and why some feel it is double-dipping.

The thought and purpose of WEP is based on that his Social Security benefits are sort-of artificially high, which is why they lowered it.

If your husband paid into Social Security for 10 years, the calculation for benefits is still divided by 35 years.  That makes his "average" wage look really low.

When you look at the "PIA formula", it rewards low-income taxpayers by giving them a much higher percentage of their income.  Similar to tax brackets it is graduated (see link below):  90% benefit for the first bracket of income, then 32% for the mid-level bracket of income, and 15% for high-income bracket of income.

When you take 10 years of working and divide it by 35 years, it appears as low-income, so the benefits are largely based on the 90% benefit bracket and some in the 32% benefit bracket.  Which sort-of inflated the benefits.

In other words, the RATIO of the benefits compared to the amount paid-in is VERY high benefits compared with somebody with similar income that paid into Social Security their entire life.

WEP was the attempt to make it more 'fair' and minimize the 90% benefit bracket for people in that situation.

But as I said before, I am not arguing for or against it; I am just explaining why WEP came about and seems "fair" to some people.

https://www.ssa.gov/oact/cola/piaformula.html

[BobKamman]

I think the GPO is more unfair to you than the WEP.  If you die, your husband won't receive survivor benefits based on your Social Security record, because they will be reduced, likely to zero, by the amount of the firefighter pension.  (Unless, Biden signs the bill on his way out the door.)  

[abctax55]

Thanks Bill.  As long as his benefits cover his Medicare premium we are happy.  I'm  more concerned about what may happen to mine as I'll start collecting next year 😉

It will be interesting to see if/when and by how much his benefits increase, assuming Biden signs.

[BobKamman]

I have a couple of relatives who are affected by this.  It's too late for one of them, she died recently,  a decade after the household income was cut in half.  She lost all of her husband's Social Security benefits because of her teacher's pension.  My other relative really wasn't aware of how either the WEP or GPO was calculated.  But then, neither was I.  I did some research and one Social Security website calculator said that the maximum reduction for WEP, regardless of the amount of pension received, is $547 a month.  This lines up with one news story I found, that reported the change would increase benefits a maximum of $540.  (It's more than that, though, for GPO.)  

Tax preparers need to spot how this affects not only current clients (increase your estimated payments, or have more tax withheld!) but former clients.  I have had many clients drop off the radar when retirement lowered their income below the filing requirements.  Some of them, though, still came close.  One couple took $20,000 from an IRA to buy a new car.  This plus pensions made some of their SS taxable, and generated an IRS notice two years later, proposing tax and late-filing penalty.  If they had called me, I could have told them to finance some of the car at low interest rates and pay the rest off in one or two years, from lower IRA distributions.  But then, they hadn't seen me for years. 

How many widows collecting only $2,000 a month in pension, will now start collecting another $2,000 a month in survivor benefits?  And who is going to remind them about taxes?  We might be able to reach them by asking our clients to spot them.  Is it too late to add it to your annual newsletter?