2017-04-20 / Community News

Social Security Matters

Substantial Earnings Test
by AMAC Certified Social Security Advisor Russell Gloor Association of Mature American Citizens

Dear Rusty: I turn 62 this June. I collect a State Teachers Retirement and have been told I face a windfall reduction in my SS benefits if I have less than 30 service years in SS. Social Security claims that the years listed below do not qualify as years worked because the income was too low. Having researched SS regulations, it stated that prior to 1978, quarters were earned if you made $50 in a quarter. If this is correct, can you tell me why these years listed below would not count? SS claims I am three years short of 30 because of these years: 1971 (earned $636); 1972 (earned $799); 1973 (earned $2175).

Thank you for your help. Signed: Retired Teacher

Dear Retired: What you’re referring to is Social Security’s Windfall Elimination Provision (WEP), which applies when a person has a pension from an employer who did not withhold Social Security payroll tax, as well as income from an employer who did withhold Social Security payroll tax. In this case the question isn’t really whether your income was enough to earn a “quarter credit” toward the required 40 credits to be eligible for Social Security benefits, but rather whether your income for those years met what Social Security calls their “substantial earnings” test. In order to qualify as substantial earnings in the formula for computing the Windfall Elimination Provision (WEP), your Social Security earnings each year must meet or exceed a substantial earnings test. Social Security’s substantial earnings minimums for the years you wrote about were: 1971 - $1950; 1972 - $2250; and 1973 - $2700.

So as you can see, you did not meet or exceed their Substantial Earnings requirement for the years 1971 through 1973 because you only earned $675, $799 and $2175 respectively in those years. Those three years are what made the difference between having your Social Security benefit reduced because you have only 27 years of “substantial Social Security earnings”, and being exempt from WEP because you have 30 or more years of Social Security income. What this means in terms of your benefit computation is that instead of applying a 90% factor to the first $885 (“first bend point”) of your average indexed monthly earnings amount, they will instead apply a 75% factor. In terms of 2017 dollars, that means that instead of that first “bend point” contributing $796.50 to your Social Security benefit amount, it would contribute $663.75 or $132.50 less. But since for anyone first eligible for Social Security in 2017 the maximum WEP reduction for 27 years of substantial earnings is $128.40, that is the amount your Social Security benefit would be reduced as a result of the Windfall Elimination Provision.

The information presented in this article is intended for general information purposes only. The opinions and interpretations expressed in this article are the viewpoints of the AMAC Foundation’s Social Security Advisory staff, trained and accredited under the National Social Security Advisors program of the National Social Security Association, LLC (NSSA). NSSA, the AMAC Foundation, and the Foundation’s Social Security Advisors are not affiliated with or endorsed by the United States Government, the Social Security Administration, or any other state government. Furthermore, the AMAC Foundation and its staff do not provide legal or accounting services. The Foundation welcomes questions from readers regarding Social Security issues. To submit a request, contact the Foundation atinfo@amacfoundation.org.

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