Hi. My name is Matt Daley, and thank you for tuning in to the Financial Success Academy.
In this episode, we'll be discussing the windfall elimination provision, or WEP, and how it may affect any potential Social Security benefits that you've earned during your lifetime.
The majority of you who work for public employers participate in a state-sponsored pension plan like LEOFF 2 or PERS. As a result, many of you work for employers who have opted out of Social Security, so you're not paying Social Security taxes. Even though you may be fully vested in the Social Security system through work you had before, during, or after your public service career, your benefit can still be reduced as a result of WEP.
To become fully vested in the Social Security system and earn a retirement benefit, you must have 40 credits, or ten years, of qualified work. For the year 2022, you earn a credit for every $1,510 of taxable Social Security income. You can earn a maximum of four credits per year.
If you are subject to WEP, your earned Social Security benefit can be reduced up to 50% for a maximum of $512 in 2022. The maximum reduction is set by the Social Security Administration and can increase.
For those of you who have more than 20 years of substantial earnings in the Social Security system, the WEP reduction does start to phase out. If you have more than 30 years of substantial earnings, the WEP reduction will be completely eliminated, even if you participate in a state pension and you did not pay Social Security taxes at your public service job.
Vesting in Social Security and earning substantial earnings are different. In 2022, to qualify for a year of substantial earnings, you have to earn at least $27,300 of taxable Social Security income.
On the legislative front, there are currently five separate bills in Congress that, if passed, would modify or eliminate the windfall elimination provision. The good news is that there appears to be growing bipartisan support for some change which could positively affect those of you who are vested in Social Security.
For more information on WEP, we encourage you to go to SSA.gov.
Thank you for tuning in to this episode of the Financial Success Academy. As always, stay safe.