Social Security checks are about to increase for some workers, thanks to the passing of the Social Security Fairness Act (SSFA).
To understand who is impacted and how, let’s first review how Social Security works.
Social Security is funded through payroll taxes paid by workers and employers. It provides a monthly retirement benefit based on an individual’s lifetime earnings and contributions. Most U.S. workers contribute to the Social Security system their entire careers and then enjoy a monthly income for the rest of their lives in retirement. But not all workers pay into the System.
Many public-sector jobs, such as teachers and firefighters (as well as other public employees who pay into state or local retirement systems), contribute to Social Security and are therefore eligible. But some do not. To offset the lack of Social Security payments, these workers are often eligible for larger pension benefits.
But what happens when a worker has a mixed work history where they worked in positions covered AND not covered by Social Security? Until recently, their Social Security benefits were reduced through two provisions, the Windfall Elimination Provision (WEP) and the Government Pension Offset. The Social Security Fairness Act changes that.
First, let’s review these two provisions:
The Social Security Windfall Elimination Provision (WEP) reduces the amount of Social Security benefits received, depending on how much the worker earned in jobs that paid into Social Security. It’s meant to prevent “double-dipping,” where someone might otherwise get full Social Security benefits on top of a pension.
The Government Pension Offset (GPO) is a rule that can reduce the Social Security spousal or survivor benefits if that person (the spouse) is also eligible for a pension from a job where they didn’t pay Social Security taxes. It’s designed to balance out the benefits since the worker didn’t contribute to Social Security for that job.
If you have a pension from a job that does not or did not pay into Social Security, the GPO and WEP amendments work together to reduce the Social Security benefit you can
receive, whether you opt to take your own benefit or a
spousal benefit, if eligible.
So, what does the Social Security Fairness Act change? Well, let’s start with what hasn’t changed. If you spend your entire career working in jobs that don’t pay into Social Security, you don’t receive a Social Security benefit, and the SSFA hasn’t changed that. If you’ve spent your career in the private sector, you are eligible for a Social Security benefit based on your top 35 years of work income. That benefit is unaffected by these changes.
If you (or your spouse) has a mixed work history between “uncovered” jobs where you and your employer have not paid in the Social Security System and “covered” jobs where you and your employer did pay into the System, the reduction to your Social Security benefit has been eliminated. Take note that the Social Security benefit still only considers income from covered jobs that paid into the system. So, if you, for example, spent 15 years as a firefighter and 25 years in the private sector, your Social Security benefit will be determined (only) by your 25 years of income in the private sector, regardless of whether you receive a pension from your time as a firefighter.
If you are part of the group impacted by the SSFA you may be wondering what you need to do to receive the increased benefits of the Act. The Social Security Administration only gave you one homework assignment: make sure that your mailing address and direct deposit information are up to date. Aside from this basic information verification, you can sit back, relax, and enjoy your increased benefit. If you want to receive implementation updates from the Social Security Administration, visit ssa.gov/benefits/retirement/social-security-fairness-act.html.
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