Social Security is a complex program that has undergone a number of changes since the program was signed into law in 1935.
One of those changes? The Windfall Elimination Provision (WEP), which came to life roughly four decades ago (and subsequently died in January 2025). This provision affected how the Social Security Administration calculated the retirement or disability benefits of some people who receive a pension.
Put more bluntly: If the WEP applied to you, your Social Security benefits might have be reduced.
Today, I’m going to introduce you to the Windfall Elimination Provision, including how it works, why it existed, and who it impacted.
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Who Did the Windfall Elimination Provision Affect?
The Windfall Elimination Provision applied to most workers who received both a pension from “noncovered work” and Social Security retirement benefits based on fewer than 30 years of substantial earnings.
Noncovered workers were considered to be any of the following:
— State and local government employees covered by other retirement systems
— Most permanent civilian federal employees hired before 1984 who are covered by the Civil Service Retirement System or another retirement plan
— Workers covered by the Railroad Retirement system
— Domestic, elector, or farm workers with earnings below set thresholds
— People with low net earnings from self-employment
— Certain nonimmigrants
It affected retired or disabled worker beneficiaries and their eligible dependents. However, it did not change survivor benefits.
As of December 2023, the WEP affected around 3% of all Social Security beneficiaries.
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Related: Don’t Believe These 17 Social Security Myths
Why Was the Windfall Elimination Provision Enacted?
Social Security calculates benefits in a way that provides lower-earning workers with a better relative benefit compared to higher-earning workers.
Social Security’s benefit formula adjusts (indexes) a worker’s covered earnings to reflect the rise in standard of living over their working years, then adds up the 35 years with the highest indexed earnings, and divides them by the total number of months across those years. (If a person has fewer than 35 years of covered earnings, they receive a zero for each year under 35 when calculating the average.) The number is then rounded down to provide a figure called “average indexed monthly earnings,” or AIME.
Here’s where the weighting comes in. A person’s primary insurance amount, or PIA (your benefits before factoring in early retirement, delayed retirement credits, cost-of-living adjustments, etc.), is calculated by multiplying different brackets of AIME by different factors. These brackets are adjusted every year.
In 2024, the calculation goes like this:
— 90% of the first $1,174 of AIME, plus
— 32% of AIME above $1,174 and through $7,078, plus
— 15% of AIME above $7,078
In other words, at certain thresholds, higher pay has a diminishing impact on your Social Security benefits.
The thing is, a flaw in the Social Security benefit formula resulted in an advantage for some individuals who were high earners for many years, but who only worked a portion of their career in jobs covered by Social Security. These people would have had a number of zeros in their average monthly covered earnings, but they still earned enough in covered jobs to benefit from the weighted low end of the calculation.
The Windfall Elimination Provision was enacted in 1983 to help eliminate this unintended advantage—by specifically targeting workers who also had pensions from noncovered employment.
How Did the Windfall Elimination Provision Work?
If a person became eligible for Social Security benefits in 2024, and they had 20 or fewer years of covered earnings, the Windfall Elimination Provision changed the formula. Specifically, the 90% factor for the first $1,174 of AIME becomes 40%, or a reduction of up to $587—the maximum amount WEP could reduce benefits by in 2024.
After that, the factor rises by 5 percentage points for each year of covered employment over 20 years (thus, 21 years = 45%, 22 years = 50%, etc.). The WEP became fully phased out at 30 years of covered employment.
Additionally, under WEP, the resulting reduction in benefit amount it caused couldn’t exceed more than half of one’s noncovered pension. So if you had a noncovered pension of, say, $200 per month, your Social Security benefits could only be reduced by a maximum of $100 per month.
A few examples based on different pension sizes:
— If you had a monthly noncovered employer pension of $500 before taxes, your Social Security benefit might be reduced by up to $250.
— If you had a monthly noncovered employer pension of $1,000 before taxes, your Social Security benefit might be reduced by up to $500.
— If you had a monthly noncovered employer pension of $1,500 before taxes, your Social Security benefit might be reduced by up to $587.
— If you had a monthly noncovered employer pension of $2,000 before taxes, your Social Security benefit might be reduced by up to $587.
Related: Pensions Aren’t Dead Yet: 15 Jobs With Pensions
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Is the Windfall Elimination Provision the Same as the Government Pension Offset?
No. The Windfall Elimination Provision and the Government Pension Offset (GPO) were two separate provisions that applied to different groups of people:
— The WEP could affect people who receive both a non-covered pension and Social Security retirement or disability benefits
— The GPO could affect people who receive both a government pension plus Social Security spousal or survivor benefits
Also:
— The WEP could not completely wipe out a person’s benefits.
— The GPO could 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.
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Is the Windfall Elimination Provision Going Away?
Some people wanted the Windfall Elimination Provision to end, saying that it’s an unfair penalty against people who pay Social Security taxes but also work other jobs that don’t pay into Social Security.
Congress and President Joe Biden agreed, signing The Social Security Fairness Act into law in January 2025, eliminating the Windfall Elimination Provision and the Government Pension Offset (GPO). The act was reintroduced by Reps. Abigail Spanberger (D-Va.) and Garret Graves (R-La.) in January 2023.
Related: Do I Need a Financial Advisor? 7 Questions to Ask Yourself
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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.
Do you want to get serious about saving and planning for retirement? Sign up for Retire With Riley, Young and the Invested’s free retirement planning newsletter.
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: 9 States That Tax Social Security Benefits
While most states don’t subject Social Security benefits to taxation, at least 9 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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