As the times evolve, so too does the Social Security Administration.
While Social Security has existed for the better part of a century, it certainly hasn’t remained stagnant since then-President Franklin D. Roosevelt signed it into law in 1935. The SSA has made a number of tweaks to this vital social safety net—sometimes to close loopholes, sure, but sometimes also to reflect broader societal changes.
That brings us to the Government Pension Offset (GPO)—a Social Security provision that reduces (or in some cases, wipes out completely) some Americans’ Social Security benefits.
Read on as I explain the GPO, including why it was introduced, what it does, and who it affects.
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Table of Contents
Who Does the Government Pension Offset Affect?
To understand who the GPO affects, you have to understand Social Security spousal and survivor (aka widow’s/widower’s benefits).
Social Security spousal benefits pay eligible people a portion of their spouse’s full Social Security benefits. By virtue of receiving benefits, the spouse would have had some amount of “covered” employment, which means they were paying Social Security taxes on their wage income or self-employment income.
The maximum spousal benefit is 50% of what Social Security’s benefit formula determines the spouse’s full retirement age benefit (also known as the primary insurance amount, or PIA) to be.
Meanwhile, survivor benefits work roughly the same way, though the maximum benefit is 100% of PIA.
These benefits can be vital for people who don’t qualify for Social Security on their own, or who would only qualify for a very small amount.
However, the Government Pension Offset affects the Social Security spousal or survivor benefits of most workers who receive federal, state, and local pensions for employment that isn’t covered by Social Security.
As of December 2023, about 1% of all beneficiaries had their benefits reduced by the GPO, split roughly half-and-half between spouses and widows/widowers.
Related: How to Invest HSA Funds [Level Up Your Retirement Savings]
Why Was the Government Pension Offset Enacted?
When Social Security began in the 1930s, women were becoming a more common sight in the workplace. Still, being a housewife or stay-at-home mother remained popular, and women who did work were paid less than men. So, in general, it was fair to say that men largely supported their wives, while the opposite wasn’t commonplace.
The law, then, under the assumption that wives were monetarily dependent on their husbands (and not the other way around), was somewhat unequal. In Califano v. Goldfarb, it is described that “survivors’ benefits based on the earnings of a deceased husband covered by the Act are payable to his widow regardless of dependency” while “such benefits on the basis of the earnings of a deceased wife covered by the Act are payable to her widower only if he was receiving at least half of his support from her.”
In short: Men had to prove they were dependent on their wives. Women did not have to prove they were dependent on their husbands.
Califano v. Goldfarb, by the by, was a case heard by the Supreme Court, which ruled in 1977 that the sex-based distinction was unconstitutional. Thus, Social Security could no longer require men to prove they received at least half of their support from their wives to qualify for husband’s or widower’s benefits.
But as so often happens with complex laws, changes can cause unintended issues.
Suddenly, hundreds of thousands of retired men who worked in noncovered government positions qualified for Social Security benefits as spouses or widowers. People questioned the fairness of this large windfall considering those workers had pensions that didn’t require them to pay Social Security taxes. It also added hundreds of millions of dollars to the annual cost of the Social Security program.
The fix? The Government Pension Offset.
What is the Government Pension Offset?
Congress created the Government Pension Offset (GPO) as part of the Social Security Amendments of 1977 so people receiving a pension from noncovered government employment wouldn’t receive full Social Security spousal and survivors benefits. (Remember: State and local government employees are classified as noncovered workers because they don’t pay Social Security taxes on their government earnings.)
Originally, 100% of one’s noncovered government pension was subtracted from that person’s Social Security spousal benefits. This decision was heavily criticized, however, and so the reduction was changed to its current form.
Related: How Much to Save for Retirement by Age Group [Get on Track]
How Does the Government Offset Pension Currently Work?
The GPO’s spousal benefit reduction is an amount equal to two-thirds of the noncovered government pension.
Let’s say you receive a monthly noncovered pension payment of $1,200. Two-thirds ($800) would be deducted from your spousal benefit. If your spousal benefit were $1,000, you would receive $200 ($1,000 – $800 = $200) per month from Social Security.
Note: If the reduction amount is higher than your monthly Social Security benefit, you might not receive any Social Security benefits at all.
You can estimate the most your benefit could decrease at SSA.gov.
Related: 15 Alarming Gen X Retirement Statistics
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Is the Government Pension Offset the Same as the Windfall Elimination Provision?
No. The Windfall Elimination Provision and the Government Pension Offset (GPO) are two separate provisions that apply to different groups of people:
— The WEP can affect people who receive both a non-covered pension and Social Security retirement or disability benefits
— The GPO can affect people who receive both a government pension plus Social Security spousal or survivor benefits
Also:
— The WEP can not completely wipe out a person’s benefits.
— The GPO can completely wipe out a person’s benefits.
It’s an understandable mistake. People often talk about these provisions together because both involve pensions and a reduction in Social Security payments.
Related: Pensions Aren’t Dead Yet: 15 Jobs With Pensions
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Are Social Security Benefits Taxable?
Let’s get straight to the answer on this question: Generally, Social Security income is taxable. This is true whether you’re receiving monthly retirement, survivor, or disability benefits from the Social Security Administration. Tier 1 railroad retirement benefits count as Social Security income and are generally taxable benefits, too.
However, you don’t have to pay federal income taxes on Social Security payments if your combined income is below a certain amount. In addition, Supplemental Security Income (SSI) payments, which are sent to qualified people with a limited total income, aren’t taxable. Disability payments received for injuries incurred as a direct result of a terrorist attack against the U.S. or its allies aren’t taxable, either. This includes Social Security Disability Insurance (SSDI) payments.
Are Your Social Security Benefits Taxable?
The first step in determining if your Social Security benefits are taxable is to calculate what’s commonly called your “provisional income” (a.k.a., combined income).
For most seniors, your provisional income is equal to the combined total of 50% of your Social Security benefits, modified adjusted gross income, and tax-exempt interest. If you’re filing a joint return, include amounts for both spouses.
— 50% of Social Security Benefits + Modified Adjusted Gross Income (MAGI) + Tax-Exempt Interest = Provisional Income
If your provisional income is low enough, none of your Social Security benefits will be taxed (i.e., 0%). However, this generally isn’t the case if you have taxable income in addition to your Social Security benefits (e.g., taxable distributions from a traditional IRA or pension).
If your provisional income is above the 0% threshold, then up to 50% or up to 85% of your Social Security benefits will be subject to federal income tax.
In all cases, the provisional income thresholds are based on your filing status.
Related: 11 Ways To Avoid Paying Taxes on Your Social Security
If you’re looking to minimize the tax bite taken out of your Social Security benefits in retirement, you’ve got several available actions to reduce how much you pay each year. We outline several ways to avoid paying taxes on your Social Security benefits.
Related: 10 States That Tax Social Security Benefits
While most states don’t subject Social Security benefits to taxation, at least 10 states do tax Social Security. To see if you live in one of them, or you’re considering a relocation for retirement and taxation of your Social Security is a sticking point, we’ve got you covered with all of the details.
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