What will this tax law change do to my Social Security benefits?

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Q. Are there changes coming to the so-called Windfall Elimination Provision that affects the Social Security of so many employees?
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A. The Windfall Elimination Provision (WEP) is a formula used to adjust Social Security benefits for people who receive certain kinds of pensions but are also eligible for Social Security benefits based on other Social Security-covered earnings.

These pensions are called “non-covered” pensions.

It refers to pensions paid by employers, typically state and local governments, that do not withhold Social Security taxes from a worker’s paycheck, said Jodi Cirignano, a certified financial planner and certified public accountant with Peapack Private Wealth Management in New Providence.

She said Congress passed the law to remove an advantage for workers who collect government pensions — and didn’t have Social Security taxes deducted from their paycheck — but also had other employment where they paid some Social Security taxes.

“Social Security benefits are progressive and designed to provide low wage-earners with a higher level of benefits relative to the Social Security taxes paid in,” she said. “So in some cases, workers with little of their lifetime income reflected in their Social Security earnings record were able to benefit from Social Security’s progressive formula and receive benefits as if they were long-time, low earners.”

Under the WEP formula, Social Security benefits can be reduced by up to 50% of the worker’s pension amount, she said.

With regard to possible changes to WEP, the Biden campaign released a 2020 paper that discussed possible changes to Social Security, including the elimination of the WEP, she said.

“Senator Ted Cruz and U.S. representative Kevin Brady introduced legislation to remove the WEP in 2016 and in each year since, but Congress has given the bill a lukewarm reception,” Cirignano said. “The Biden Administration may pursue revisions to the WEP as part of a larger Social Security reform package, but changing Social Security is a challenging task that will likely require bi-partisan cooperation.”

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This story was originally published on Feb. 10, 2021.

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