03/2020 KIPLINGER’S PERSONAL FINANCE 59Before the WEP was enacted in
1983, Social Security considered
workers who had no earnings covered
by Social Security for a certain num-
ber of years to be low-wage workers—
and for low-wage workers, Social
Security adjusts benefits so that they
replace a greater percentage of aver-
age career earnings than for high-
wage workers. The WEP is designed
to remove this advantage for those
who are also receiving a pension based
on employment in a public-sector job.
The WEP doesn’t apply if you have at
least 30 years of substantial earnings
under Social Security.
Holding a public-sector job not
covered by Social Security may result
in a hit to your spousal or survivor
benefits, too. The government pension
offset (GPO) lowers such benefits by
two-thirds of the amount of your gov-
ernment pension. If your monthly
pension amount is $900, for example,
your spousal or survivor Social Secu-
rity benefit will be reduced by $600.
The GPO may wipe out your entire
spousal or survivor benefit.Are Medicare premiums automati-
cally deducted from Social Security
payments?
If you’re collecting Social Security
checks when you become eligible for
Medicare at age 65, your Medicare
Part B premiums are automatically
deducted from your benefit. If you
aren’t receiving Social Security bene-
fits when you’re ready to start Part B,
you’ll have to enroll in Medicare sepa-
rately, and you’ll get a bill for premiums.
Medicare Part A, which covers hospital
stays, has no premium for most people.
If you have a Medicare Advantage or
Part D plan, you can have those premi-
ums removed from your Social Secu-
rity check, too—but it’s not automatic.
The amount deducted for Medicare
premiums of any kind is considered
part of your Social Security benefit
and may be subject to tax. ■your earnings, you’ll get the $500
back in 2021. If your 2020 tax return
shows that you previously overesti-
mated your earnings, you’ll get back
the difference. If you earned more
than expected, you’ll have to repay
the amount due to Social Security.
Once you reach full retirement age,
the earnings test vanishes. Note that
income from investment earnings,
retirement-account withdrawals and
pensions does not fall under the earn-
ings test, which applies only to earnings
from a job or self-employment.
The earnings test may cause some
pain while you’re working, but bene-
fits withheld aren’t lost forever. Start-
ing at your full retirement age, Social
Security boosts your monthly check
to make up for the missed benefits. For
example, if you started taking benefits
at 62, your full retirement age is 66
and you lost 12 months’ worth of bene-
fits to the earnings test, Social Security
will adjust your monthly payout as
though you had started benefits three
years early instead of four.I work in the public sector, as a
teacher, and I’ve heard that I may
receive reduced Social Security
benefits. Is this true?
In certain states, government em-
ployees such as teachers, firefighters
and police officers may be affected by
what’s known as the windfall elimina-
tion provision (WEP). Under the WEP,
you would face a cut in benefits if you
receive a government pension paid
from an employer that did not with-
hold Social Security tax from wages
and, at some point, you also worked in
the private sector, paying Social Secu-
rity tax on earnings. The WEP won’t
eliminate your Social Security benefit,
but it could shrink your monthly pay-
out by hundreds of dollars. For a list of
the 15 states in which public employees
may not be covered by Social Security,
go to http://www.nea.org/home/16819.htm.
If you’re affected by the WEP, use the
calculator at http://www.ssa.gov/planners/
calculators to estimate your benefit.threshold, Social Security withholds
$1 in benefits for every $2 you earn.
The year you turn your full retirement
age, Social Security cuts you a break:
The amount exempt from the earnings
test is higher—in 2020, it’s $48,600—
and the test applies only to the months
prior to the month of your birthday.
Plus, benefits are trimmed by $1 for
each $3 earned.
Rubbing a little salt into the wound,
Social Security doesn’t remove bene-
fits from your checks proportionally.
Say that in 2020, your monthly benefit
is $1,000, you won’t reach full retire-
ment age and you estimate that you’ll
earn $23,240 for the year. In that case,
$5,000 of income is subject to the
earnings test, and Social Security
needs to withhold a total of $2,500 for
the year. Because Social Security typi-
cally doesn’t make partial monthly
payments, you’ll get no benefit check
for three months, missing out on a to-
tal of $3,000. If your 2020 tax return
shows that you correctly estimated
YOU CAN CONTACT THE AUTHOR AT LISA_GERSTNER@
KIPLINGER.COM.